Case 2 Questions: Square, Inc. IPO
1. Please answer all questions. Be precise and answer to the point.
2. Approximately the answer to all questions should be about 10 typed pages [1.5 spacing, Times New Roman 11 font] excluding appendices.
3. Professional presentation, extra research and financial analysis are rewarded.
4. The cases are group effort and are judged accordingly.
1. Initial Public Offering: Why did Square, Inc. go public? What are the normal methods, and normal costs of going public? How does the underwriting process used by financial institutions in IPO mitigate informational asymmetries? For an investor, what are the risks and rewards from investing in an IPO?
2. Business Model: How does Square, Inc. make money? What are the value drivers of its business? What is Square, Inc.’s market potential? What is Square’s comparative advantage over other payment aggregator competitors?
3. Valuation: How do we value shares of high technology shares, and unicorns such as Square, Inc.? (Refer NYU Professor Damodaran on Valuation website wherein he details how such companies should be valued!) Based on its financial history, what do you think is the intrinsic value of a Square share? How does this valuation compare to the price talk from the underwriters prior to the IPO? Based on its risk reward structure would you recommend investment in this IPO at the time of issue?
4. Pre-IPO History and Regulations: What was going on in the U.S. IPO market prior to Square’s offering? How have the regulations influenced the issuance of Square, Inc.’s IPO?
5. Recommendation:
Who were the winners and losers of the Square IPO?
What were the broader market implications of the Square IPO?
In your opinion did Square and the underwriters underprice the IPO, or had the pricing strategy been correct in ensuring market demand after the IPO?
If you had invested $10,000 in this IPO what would be your return on December 3, 2021?
What is the future potential of Square, Inc.?
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