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EBay Case Study

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  • April 19, 2004
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Section A: Problem/Issue Statement

Following a 220% increase in profits and 800% increase in revenues over six months, eBay Inc. is considering the following courses of action:

1.One being an IPO offering, requiring the sale of less than 9% of the company. This offering will be for 3.5 million shares, with an expected sale price at between $14 and $18 per share.

2.The other is to delay the offering for six months. This will cost eBay approximately $1 million in direct expenses; however eBay's additional losses will be far greater due to the delay of major investment initiatives.

In determining the appropriate course of action, the following topics were considered:

1. What are the costs and benefits of eBay going public?

*How do current market conditions affect the decision to go public?

*What are the advantages and disadvantages of delaying the IPO versus proceeding now?

2. What is the appropriate IPO price?

*What is the intrinsic value of eBay?

*What drives IPO price besides intrinsic value?

*How do the various "stakeholders" view pricing:

oShareholders (current and IPO purchasers)?

oCompany?

oManagement?

oEmployees?

oInvestment Bankers?

oCompetition?

Section B: Recommendation

We recommend that eBay should go ahead with the IPO offering.

*We feel that the company is in a good situation right now to offer the IPO.

oAlthough other companies have been reluctant to issue and IPO in the past weeks, we feel that eBay's situation is different.

oWe can be the IPO that will heat up the market again.

*The share price that we have decided at, we feel is a reasonable price for the potential value of the company.

oSince we valued our company and we can receive the price that we want right now there is really no reason why we should wait for six months.

After reviewing the plans to delay the IPO, we decided it was not in the best interest of eBay's stakeholders.

*The market may likely be worse off...