Report on IPO Valuation of JetBlue Airways

JetBlue Company which commercially started its operation in 2000. Within two years of its commercial operation, the company applied for going public for supporting its staggering growth. For its unique market offerings JetBlue already has established itself as a fastest growing low-fare airline in USA. Through cost leadership and offering added advantage to the customers JetBlue positioned itself as successful one which shows positive net profit only after two years of operation.
The main problem surrounds the JetBlue case about the determining of its IPO price. Board is skeptical whether share should be floated at premium or at discount. Excess demand urges for premium pricing and future financing concern urges for pricing at discount. We proceed to solve this case by following steps

The first step we narrate the problem statement and analyze the extent of the problem where we mentioned pros and cons of both pricing options. In the second step we put some fundamental analysis to assess the situations before developing our solution. The analyses include Economic Analysis, Porter’s five forces analysis, Porter’s Generic Strategy Analysis. Under company analysis we conduct SWOT analysis, Ratio Analysis, Risk factor Analysis. By these strategic tools we want to assess the state of the company in terms of economic and commercial viability. These analyses helped us to develop the alternatives to bring about the final solution

In the third step we have developed alternatives to solve the problem. And in our case the alternatives is centering the determination of offer price of JetBlue IPO. We estimate offer price based on multiples and Discount Cash Flow Basis. There we consider industry average more precisely peer group average to determine the average multiples and find out the price based on average multiples. The price in multiples and DCF differs considerably ranging from $9 to $42. In our final recommendation we suggest a price range of $26-$28 based on our quantitative estimate and qualitative judgment.

And finally, we put a recommendation part where we put arguments and assumptions behind our suggested price.

There are several objectives to conduct the study which are:
  • In this analysis which is in US economy consequently we tried assume about the overall economic condition of the economy.
  • We tried to identify the problem of the case and analyzed the problem.
  • Tried to find out the pros and cons of the analyzing company.
  • Analysis of the overall airlines industry in the United States.
  • Find out the risk involved regarding being public.
  • What could be the value per share following different approaches like free cash flow, discounted cash flow, dividend discount model etc.
  • Do prospective analysis of the company’s future cash flow based on which find out the value of the IPO.
  • Operating efficiency ratio to measure the capacity of a firm to exploit its resources to boost up sales as well as financial position in the industry.
  • Profitability ratios analysis to understand the cost structure of a firm as it deals with gross, operating and net profit margin.
  • Made SWOT analysis which determined the strength, weaknesses, opportunity and threats.