Initial Public Offerings - Essay Example

Running head: INITIAL PUBLIC OFFERINGS Initial Public Offerings Initial Public Offerings As a result of increased competition organizations are devising strategies of earning more capital to enable them expand and thus attract and serve bigger markets. One of the most commonly used and effective strategy is the Initial Public Offering (IPO). It involves the process of an organization issuing a certain percentage of its shares to the public with the main goal of raising capital to expand or become a publicly traded entity (Clinton, 2011).

So as to fully understand IPO and how it works this article will briefly discuss the Starbucks Co. (SBUX) IPO. The Starbucks Co. is known worldwide for its ability to provide among the best brewed coffee in the market as well as offer outstanding customer service extending this to the community through Corporate Social Responsibility (CSR). The company specializes in the purchase of high-quality whole coffee beans which it roasts and sells together with fresh ones. Starbucks also supplies an array of richly brewed coffee, ready-to drink beverages, cold blended beverages, various types of premium teas, Italian-style espresso beverages, beverage related equipments and accessories and a myriad of complementary food items.

As a result, the company has managed to operate in more than 50 countries where it runs about 15,000 retail stores in the US only. From the year 2001 to 2005, Starbucks managed to open approximately 1,200 stores on a yearly basis. During the same period the company managed to go public by issuing an IPO. This enabled it to increase its revenues from $2.17 billion to approximately $5.39 billion. Its net earnings also drastically increased from $94.9 million to about $494.5 million. Moreover, Starbucks is committed to developing a long-lasting connection with its customers wherever it is located thereby bringing an exceptional experience to all.

As a result it has managed to create an inviting atmosphere where people can meet to chat, work and engage in their daily routines. On the other hand, Starbucks upholds CSR standards which enable it to respect and treat its customers, employees, partners, shareholders and the community with dignity. All these factors contribute to the interest towards the company and thus the urge to learn more about its IPO. In June1992 Starbucks became publicly owned via an IPO which turned out to be quite successful as it enabled the company to accelerate its efforts for expansion into the global market (Drahol, 2009).

Starbucks shareholders must abide by strict guidelines and rules formulated by the board of directors. They are entitled to receiving financial information of the company quarterly. As a result, many financial doors were opened up because the company was able to raise a great deal of money through the IPO (Investopedia, 2011). In addition, it stands a better chance of attracting better rates when seeking for debts, forming mergers and being part of an acquisition. On the other hand, the company is liquidated thus able to attract top talent by implementing various management strategies such as employee stock ownership plans (Investopedia.com, 2011).

Since its IPO Starbucks has had only five 2-for-1 stock splits which has enabled shareholders to purchase the initial Starbucks common shares, reinvest some or all of the Starbucks cash dividends by buying more stock, safe keep the stock certificates, deposit cash dividends directly and pay lower fees when selling stock than the usual fee charged by stockbrokers for conducting small transactions. From the above information it is quite evident that Starbuck Company owes its expansion and growth to the success of its earlier IPO and subsequent related activities like stock split.

Therefore, a small organization whose main goal and vision is to outgrow its competitors should improve its marketing strategies so as to lure large pool of investors in buying its stocks. This is because the success of an IPO depends on the effectiveness of the marketing campaign. Conversely, its success will be able to rapidly raise a great deal of essential finances that will immediately offset all the expenses brought forth by the regulatory compliance and efficiently engage in expansionary strategies.

References Clinton, L. (2011). Traditional IPO vs. auction-based IPO. Retrieved from http://www.essortment.com/home/traditionalauct_sibt.htm Drahol, J. (2009). The IPO decision: Why and how companies go public. Williston, VT: Edward Elgar Publishing. Investopedia (2011). IPO basics: Introduction. Retrieved from http://www.investopedia.com/university/ipo/ Investopedia.com (2011). What does initial public offering - IPO mean? Retrieved February from http://www.investopedia.com/terms/i/ipo.asp