JETBLUE AIRWAYS IPO VALUATION By : Thomas Hsieh ; Eric Peng ; Wendy Tseng ; Xiuhui Chong ; Che-Yi Chiang ; Alex Chen
The Low-Fare Airlines • A low-cost airline is an airline that generally has lower fares and fewer comforts. • Southwest Airlines is the dominant player among U.S. low-cost airline industry • Following the success of Southwest Airline, some new low-fare airlines emerged
JetBlue Airways • David Neeleman founded the company in February 1999 • Neeleman:“Bring Humanity Back to Air Travel” • Managerial level：
JetBlue Airways • Offering low-cost travel, but distinguish itself against competitor • Lowest operating cost per available-seat-mile among any major U.S. airline • By early 2002, JetBlue have boomed to be able to operate 24 aircraft flying 108flights per day to 17 destinations.
Trend – Revenue Growth Rate JetBlue Airways • JetBlue’s growth rate are almost positive in recent decade, but it gradually decrease in nearly years
I.P.O Process in U.S • I.P.O.’s in the United States have been underpriced by 16.8 percent on average. • “I.P.O. underpricing is also a worldwide phenomenon. In China, the underpricing has been severe, averaging 137.4 percent from 1990to 2010. This compares with 16.3 percent in Britain from 1959 to 2009. In most other countries, I.P.O. underpricing averages above 20 percent.” (Davidoff, 2011)
Potential Benefits & Drawbacks of IPO • Pros of going public: • Potentially large financial rewards for owners. • The ability to raise large amounts of growth capital quickly. • Direct access to capital markets. • A valuable employee retention and recruiting tool. • A liquid market for selling ownership shares. • More liquidity for your estate. • Better market position and credibility of company.
Potential Benefits & Drawbacks of IPO • Cons of going public: • High cost. • Give up a large amount of equity. • Ongoing costs of public reporting. • Maintain requirements for public companies. • Less control. • A whole new set of stakeholders. • Hostile takeover risk. • Pressure to meet investor expectations. • Communicate on a regular basis. • Force to make decisions for short-term reasons • Market volatility.
IPO Valuation • Discount Cash Flow • WACC
Growth Rate Scenario Analysis • Free Cash Flow FCF = NOPAT – CAPEX – change in NWC • IPO Price
Comparable Firms Approach • Use the P/E ratio of the industry to estimate JetBlue’s P/E multiple