University of Maryland, R. H. Smith Business School

Case Report
Facebook INC:
The Initial Public Offering

Group Members
Ao Zhou
114214195
Zehua Huang 114352699
Emily Buczkowski 112344252

Rui Cao
114368911
Julian Gooch 112364922

University of Maryland, R. H. Smith Business School

Summary
Facebook is an emerging internet-based company which has astonishing growth in the past decade. Its substantial user base, subsequently massive database and pioneer brand image provide Facebook with the profitability base of its business. The main goal in this case is to evaluate the opportunity of investing
Facebook in its IPO. Here we use both DCF valuation and Multiples valuation method to measure if
Facebook is fairly …show more content…

2. Why is Facebook going public? What is the planned use of proceeds from the offering?
Facebook is going public because they wanted “create public market for existing shareholders and to enable future access to public equity markets.” In essence, Facebook wanted their current shareholders to have the ability to trade their shares with both shareholders and nonshareholders. Also, IPO could increase wealth of some administrative staff who hold shares and tie their wealth to the firm’s growth, therefore increasing their motion to work. Most importantly, it could generate fund needed in daily operation and expansion. Facebook plans to use the increased equity for “working capital and other general corporate purposes.” We can assume that these purposes to sustain future growth may include intrinsic improvement such as paying off longterm debt and raises salary for staff and external expansion such as Merge and Acquisitions (M&A) and promotion or advertising campaign aimed at enlarge market shares.
3. What was the condition in the U.S. IPO market prior to Facebook’s offering? What has been

University of Maryland, R. H. Smith Business School

the performance of recent IPOs? How would it affect Facebook’s IPO?
Before Facebook’s IPO, the condition of US primary market is quite fluctuating and unsatisfactory:
After a short recovery at mid-2011, both number of IPO and capital raised recently have declined to a
3-year low level since the