Netflix launched its website in April of 1998, offering customers online rentals and sales of DVDs. Netflix experienced rapid growth; revenues grew from USD 1.4 million in 1998 to USD 152.8 million in 2002. Netflix’s strong record of executing on its core principals – value, convenience and selection – enabled the company to win subscribers at a much faster rate than directly competing online services. After Netflix had its first positive cash flow in the fourth quarter of 2001; Company’s management decided to embark in a second IPO process. Netflix’s management decided to pursue a public offering given the need to raise additional capital in order to sustain and grow the business. However, there are some internal and external factors that can affect a company’s decision to pursue a public offering: •
The main internal factor is the funding concern, in order to sustain and grow the business, a company has different alternatives of funding; an IPO allows a company to raise equity, which does not negatively impact the leverage ratios. •
The market environment. This external factor affects the price of the share and the underwriting offers that a company can obtain through a public offering process. Selecting a lead underwriter is an important decision for a company who is pursuing an IPO; it is important that the underwriter offer the company what they are looking for in terms of price and dollar amount. The company is looking for an underwriter who has a good reputation, set of skills and ability to complete the underwriting. The amount of leverage that the company has towards ensuring the underwriter follows through on the company’s expectations is determined by how much business the company can bring after the offering; in other words, the more potential businesses the company can bring, the more the bank is going to take care of them. One important part of the offering process is the writing of the Prospectus, we consider that this document should be...
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