Rohu: Inc. Initial Public Offering Case Study Solution
Introduction
The case is about to evaluate the process of Portfolio Capital Management which proposed to make an investment in the IPO of Roku In charge (Xu, 2019). Roku In charge is counted in the world high Information Technology services company which provides services in the many parts of the world. After the completion of one year of business, she desired to examine the journey and her experience of business. In the year 2017, the Roku in charge trailed for its first offering in the public and offer the shares with a high lower range of $12 to a higher level of $14.Portfolio manager of the firm has doneanalysing and advantages and disadvantages for investing in the IPO.
Benefits and Challenges to RokuShift towards Revenue Based Model
Challenges for Revenue Based Model
Roku In charge is shifting from the hardware-based model to platform based model. The new model raises the challenges which were also linked with the previous business model. The Rohu was completely relying on the sales of its hardware, but now they are shifting towards the Revenue Model, which generates revenue through the sale of its content. The corporation has no experience in sales of content and generates revenue from it.
The prime challenge for the company was to attract the users towards the sale of content. The firm was quick to run this new model, which also create the challenge of maintaining the quality of content and satisfaction of customers, which also affect the revenue of the company. Poor the quality poor would be revenue. If they don’t use the revenue model carefully, the company can face failure.
The Competition is also the major challenge for the company because in the market there is also availability of this model used by Amazon fire, Chrome cast and Apple televisions. The company has also the financial challenges in adoption of New Revenue Model.
Benefits of Revenue Based Model
The prime benefit for Rohu to use the Revenue Based Model was the company has great relations with the other content providers, which helps the Rohu to gain competitive advantage in market and helps the Rohu to increase the quality of Content. The good relations with content providers also increase the base of customers for Rohu, which increases the revenue of the company and also increases the market share of the company. Through this model, the Rohu can easily filter the things and arrange them prioritize. This model also helps the company to understand the target audience and the pricing of content. The update profit generated strategies are also designed through the model.
Pros and Cons of Dual Class Equity
Dual Class Equity Advantages
- The major advantage of the Dual class equity is that the top management of the Rohu can identify the short-term challenges for the company and resolve them in a very short time.
- The management can give complete focus on the growth of the company and coming up with long-term strategies which maintain the sustainability of the firm in the market.
- The revenue of the company increase with the growing customers and enhancement of company’s performance.
- The corporation can also get the benefits of outsourcing with additional benefits of investors which are loyal to the company.
Dual Class Equity Disadvantages
- The level of injustice is increased in the Dual equity because there are several investors with limited classes.
- The conflicts between Rohu management and investors also increase, which affects the decision-making process of the firm, which negatively affects the growth of the company.
- The structure of the company can also become weak because of the free internal culture of employees with higher voting rights.
- Administered issues also be created during the Dual Class Equity.
Estimation of Market Price Per Share
As shown in the Below Appendices 1, the maximum estimated value of the market price per share is the $24.91; it means the Rohu can increase the prices of shares from $14 to $24.91. It is the maximum level for generating more revenue for the company by using the Revenue Based Model.
Discounted Cash Flow Analysis
The Discounted cash flow approach is used to reach the targeted price of the share for the market. In the Discounted cash flow, we project the cash flows from the period of 2018 to 2027. In which the estimated free cash flow of the 2023 is higher than as compare to other previous and coming years, the value of FCF in 2023 is $208.07. The Net Present Value is also calculated in discounted cash flow for calculating the price per share.
The Value of the NPV is $448.77, which means the company is a good fit for doing any project. The WACC is also calculated as shown in the Appendices 2. The value of Weighted Average Cost of Capital is 1.29%. The price per share of the Rohu for the future is optimized by 24.91. The Rohu Company can increase the price by this level not to cross this range, otherwise the company faces a decline in market shares.
Significant Risks
The Rohu is facing some significant risks, which include the risk of growth and risks in assumptions and economic factors.
Growth Risk
The company has the high risk of the growth because the company has already the challenge of finances and unexperienced management in the content selling these both factors can reduce the growth of the company.
Risks in Assumptions
The company has also the risk of Assumption because in future forecasting on the Assumptions basis we calculate the Shares Per price, which may be not suitable for all the investors, which also create negative impact for the company.
Economic Risk
The company has also the Risk of economy because changing in inflation, unemployment and increase in exchange rates have a negative impact on the company because in the phase of inflation, customer’s power of purchase also affected.
Note: These are some risks which affect the business of Rohu In charge.
Recommendations
The few recommendations are given for the future growth strategies of the Rohu In charge. In the future, the company needs to understand the target market in order to target it. The Rohu must come up with the content that solves the problem of Audience and makes them satisfy. In the future, the company will increase the value proposition, which will make them unique. The company must focus on the Content format and improve the lacking which they do in previous years. Increasing the promotions of the company will increase the customer attraction and brand recognition. So these are a few recommendations which the company must adopt to increase the growth strategies.
Conclusion
After understanding the whole case study and perform DCF analysis, we conclude the case that the Rohu must go with the Revenue Based Model because this creates the market value and Revenue for the company. The Rohu must improve the financial performance. The company can raise the price of shares to $24.91 because this is the optimal level of the company for encouraging the prices on that level the company earn more money which increase the net income of the company and company can grow more and investors get more satisfaction from the investment.
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