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Happy Thursday, future bankers!

Stocks have had a decent day, and several investment banks have opened applications for 2025 summer analyst positions. Links to a few of the summer analyst applications are at the end of this email.

🚀 Let’s get into it.

🔢 Technical Question

“Why do companies choose to report both GAAP and non-GAAP (or “Pro Forma”) earnings? What’s the difference?”

In an investment banking interview, when asked about GAAP and non-GAAP earnings, showcase your understanding of financial reporting nuances and critical thinking ability. Here's how you can structure your response:

1. Briefly explain the differences:

• Start by defining GAAP as the Generally Accepted Accounting Principles, emphasizing its standardized nature and focus on historical financial performance.

• Briefly explain non-GAAP or "Pro Forma" earnings as adjustments made to GAAP figures, excluding specific items to offer an alternative view of operational performance.

2. Discuss reasons for using both:

• Transparency and comparability: GAAP ensures standardized reporting across companies, aiding comparison and analysis.

• Focus on core operations: Non-GAAP adjustments remove one-time events or non-recurring items, offering a clearer picture of a company's underlying business performance.

• Investor guidance: Companies might offer non-GAAP metrics to adjust for unusual items and help investors understand future earning potential.

3. Mention potential drawbacks of non-GAAP:

• Lack of standardization: Non-GAAP adjustments can vary between companies, making comparisons challenging.

• Potential manipulation: Companies might exclude items to present a rosier financial picture, requiring careful analysis.

Example Response:

"GAAP offers standardized reporting, ensuring comparability across companies. However, non-GAAP adjustments can provide a clearer view of core operations by excluding one-time events. Companies use both to offer transparency and aid investor understanding, but it's crucial to analyze non-GAAP adjustments carefully to avoid potential manipulation. Personally, I believe a thorough understanding of both GAAP and non-GAAP figures is essential for accurate financial assessment."

🗣 Behavioral Question

"What important truth do very few people agree with you on?"

This is a tricky interview question as it requires introspection, confidence, and the ability to articulate an unpopular opinion in a well-reasoned way. Here are some tips on how to approach it:

1. Choose your truth carefully:

• Avoid controversial or offensive topics, as the goal is to be thought-provoking, not inflammatory.

• Focus on something related to your field of interest or expertise, demonstrating your unique perspective.

• Ensure your "truth" is based on some logic or evidence, not just a random hunch.

2. Frame your answer effectively:

• Acknowledge that your opinion is likely not widely shared, but explain why you hold it.

• Use data, research, or personal experiences to support your argument.

• Be respectful of other viewpoints and avoid sounding arrogant or preachy.

• Show that you're open to learning and evolving your thinking.

3. Examples of potential answers:

• “Luck plays an important role in success.”

• “Nobody really wants to hear about the dream you had last night.”

• “Emotions are central to good rational thinking.”

4. Remember, there's no perfect answer:

• The key is to demonstrate your critical thinking, ability to form independent opinions, and willingness to respectfully discuss them.

• Choose an answer that feels genuine and allows you to showcase your strengths and unique perspective.

🗞 Industry News

The Wheels are Falling Off for Peloton 🚲

Peloton is facing headwinds as it continues to struggle post-pandemic. Despite exceeding holiday sales expectations, the company anticipates another revenue decline in the current quarter, falling short of analyst predictions. This extends Peloton's two-year sales slump following a pandemic boom.

CEO Barry McCarthy's turnaround efforts haven't yet yielded consistent growth. Initiatives like the high-profile college program with the University of Michigan and the high-end treadmill relaunch saw mixed results, with the college program being scrapped due to underwhelming sales. Peloton is aiming for positive free cash flow by the fourth quarter, but achieving this goal remains uncertain.

McCarthy acknowledged challenges in growing "at scale" and attributed declining app subscriptions to quality issues that "tarnished" the brand. Customer service is undergoing a "reboot" to improve the user experience. However, there are some bright spots: retail sales grew 72%, the bike rental program is expected to double in size, and the TikTok content deal holds promise.

Overall, Peloton's path to recovery remains uncertain, with the company needing to overcome persistent challenges and capitalize on promising opportunities to achieve sustainable growth.

 📃 2025 Summer Analyst Applications

Here’s a list of some 2025 investment banking summer analyst applications for those that are interested. Hope it helps!