EBAY

Essay by velasquezcaroUniversity, Master'sA+, April 2004

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After only three years of being in business, Ebay had started the process for its public stock sale, when the stock valuations were at record levels. Then a drop on the Internet Stock Index (ISDEX) and the S&P500 caused many companies to put their publicly traded future on hold. Later, the market started to recover at the cost of high volatilities and the question of whether to go public or not became a big concern for Gary Bengier.

Unlike its competitors and the large majority of internet companies, Ebay had excellent profits and a distinctive model that guaranteed success. Moreover, If the company decided to go for the public offering the signaling effect would be an advantage; EBay's willingness to go public despite the market's volatility was a positive signal about how the company perceived the strength of its offering.

Before making a decision Bengier analyzed the advantages and disadvantages of going public, Ebay's competitors, investors risks when buying eBay stock and most importantly a fair and attractive offering price.

1. An initial public offering had both advantages and disadvantages. In Ebay's case, some of the advantages in addition to obtaining capital for corporate growth and repayment of outstanding debt were: (1) An increase in the company's net worth which would improve the borrowing capability at a lower cost, (2) unrestricted funds, (3) compensation possibilities for employees and managers, (4) prestige brought by press exposure and corporate image enhancement, (5) business opportunities as a result of publicly available financial statements and (6) Liquidity for investors among others. However, there were some disadvantages that put some weight on the difficult decision of whether to issue or wait. Some of them were: (1) The release of Ebay's most closely guarded information, (2) The high expenses which include; underwriters' discount, filing fees, legal...