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Happy Wednesday, future bankers!

Hope everyone is doing well! Today we’re covering valuing companies with competitive advantages, a task that required a high attention to detail, and the news that Reddit’s IPO is 4-5 times oversubscribed.

🚀 Let’s get into it.

🔢 Technical Question

Suppose you have a company with a competitive advantage. How would you account for this when valuing the company?

A company’s competitive advantage can significantly impact its valuation. Here’s how you might account for it:

1. Identify the Competitive Advantage: Determine what gives the company an edge over its competitors. This could be superior technology, a strong brand, cost leadership, or access to unique resources.

2. Quantify the Advantage: Try to quantify the impact of the competitive advantage on the company’s financials. This could involve estimating the additional revenue generated, costs saved, or market share gained due to the advantage.

3. Incorporate into Financial Projections: Reflect the competitive advantage in the company’s projected financial statements. This could mean higher projected revenues, lower costs, or faster growth rates compared to industry peers.

4. Adjust Valuation Multiples: If using a multiples-based valuation method, you might use higher multiples to reflect the company’s superior performance and growth prospects.

5. Consider Sustainability: Evaluate the sustainability of the competitive advantage. If the advantage is likely to persist, it should have a more significant impact on the valuation.

Remember, while a competitive advantage can enhance a company’s value, it’s crucial to be realistic about its impact and not overestimate its benefits.

🗣 Behavioral Question

Tell me about a time that you had to complete a task that required a high attention to detail.

When answering this question, it’s important to follow the STAR method, which stands for Situation, Task, Action, and Result. Here’s a step-by-step guide:

1. Situation: Describe the context within which you had to complete a detailed task. This could be a specific project or assignment during your time in an academic setting, or during a previous internship or job, even if it wasn’t directly related to investment banking.

2. Task: Explain the task you were given. Be specific about why this task required a high level of attention to detail. In the context of an investment banking internship, this could be anything from a detailed data analysis project, a financial modeling task, or a comprehensive market research assignment.

3. Action: Detail the steps you took to complete the task. Highlight the strategies you used to ensure accuracy and thoroughness. This could include double-checking your work, using specific software tools, or collaborating with peers to review the task.

4. Result: Share the outcome of your efforts. If possible, quantify the impact of your work. For example, your detailed financial analysis might have contributed to a successful presentation, or your market research could have informed a strategic decision for your school’s investment club.

Remember, the goal is to demonstrate your ability to handle tasks that require a high level of detail, a critical skill in investment banking. Be honest, be specific, and be prepared to provide additional details if asked.

🗞 Industry News

💸 Reddit’s IPO is Over 4 Times Oversubscribed

Reddit, the popular social media platform, is all set to make a splash in the stock market. The company is aiming for a valuation of a cool $6.5 billion in its initial public offering (IPO). With share prices potentially hitting the top of the $31 to $34 range, Reddit and its shareholders could be looking at a neat $748 million payday. This move has been two years in the making, with a confidential IPO filing back in December 2021. However, a stock market hiccup caused by the Federal Reserve’s quantitative tightening led to a slight delay.

Now, Reddit’s shares are expected to start trading on Thursday, marking a major test for the IPO market. The company’s IPO is reportedly four to five times oversubscribed, increasing the likelihood of achieving the targeted valuation. In a nod to its dedicated user base, Reddit has reserved 8% of the total shares for eligible users and moderators, certain board members, and friends and family of its employees and directors. The lead underwriters for the offering are Morgan Stanley, Goldman Sachs, J.P.Morgan, and Bank of America. So, keep your eyes peeled for the symbol “RDDT” on the New York Stock Exchange.

Read more about this story below.

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