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Stack #4718336

QuestionAnswer
Q14. What is EBITDA? Earnings Before Interest, Taxes, Depreciation & Amortization: proxy for operating profit/cash flow before financing, tax, non-cash charges. Ignores capex & working capital. Calc: EBIT + D&A.
Q15. How can a company grow EBITDA? Grow revenue faster than costs, or cut costs faster than revenue falls. Revenue: volume, price, mix, cross-sell, M&A. Cost: procurement, automation, headcount. PE angle: buy-and-build.
Q16. What are the three major valuation methods? (1) DCF: intrinsic value. (2) Trading comps: current market price, no control premium. (3) Precedent transactions: includes premium+synergies, usually highest. Bonus: LBO analysis.
Q17. What is a DCF? Values a company as projected free cash flows discounted to today at a risk-adjusted rate. Output = Enterprise Value. Strength: explicit assumptions. Weakness: sensitive to WACC & terminal value.
Q18. Walk me through a DCF. 1) Project unlevered FCF 5-10yrs. 2) Calc WACC. 3) Calc terminal value. 4) Discount FCFs+TV to PV = EV. 5) Subtract net debt = Equity Value / shares. 6) Sensitize WACC & growth/multiple.
Weighted Average Cost of Capital: blended return required by lenders & shareholders; the DCF discount rate. WACC = E/(E+D)*re + D/(E+D)*rd*(1-t). Higher risk = higher WACC = lower value.
Q20. What is terminal value? Value of the business beyond the forecast period. Perpetuity growth: FCF*(1+g)/(WACC-g), g~2-3%. Exit multiple: final EBITDA * multiple. Usually 60-80% of DCF value.
Q21. What is Enterprise Value? Value of the core operating business to ALL capital providers (debt+equity). EV = Equity Value + Debt + Preferred + Minority Interest - Cash. Right numerator for EBITDA multiples.
Q22. What is Equity Value? Value belonging to common shareholders: share price x diluted shares. Equity Value = EV - Debt - Preferred - Minority Interest + Cash. What an acquirer pays shareholders.
Q23. Why do you subtract cash from Enterprise Value? Cash is non-operating: buyer gets it, can use it to pay down debt, so it lowers effective price. Consistency: EBITDA excludes interest income on cash, so EV excludes the cash too.
Q24. What is an EBITDA multiple? EV / EBITDA: $ paid per $1 of operating earnings (EV $1B / EBITDA $100M = 10x). Used in comps/precedents. Higher for growth, margins, recurring revenue, low risk.
Q25. What is a premium? Amount an offer price exceeds the target's unaffected share price; price of control. Premium = Offer/Unaffected - 1. Typically 20-40%. Example: WBD $31 vs $12.54 = 147%.
Q26. What is an LBO? Acquisition funded mostly with debt secured by the target's assets/cash flow, plus sponsor equity. Cash flow repays debt over ~3-7yrs; exit via sale/IPO. Leverage amplifies returns & losses.
Q27. How does a PE firm create value? 3 levers: (1) EBITDA growth, biggest lever; (2) debt paydown from FCF; (3) multiple expansion, a bonus not underwritten. Also governance & better capital allocation.
Q28. What are synergies? Extra value when two companies combined are worth more than the sum of their parts (1+1=3). They justify the premium paid. Two types: cost and revenue synergies.
Q29. What are cost vs. revenue synergies? Cost: cut duplicate functions/facilities/tech, procurement scale. High certainty, 1-3yrs. Revenue: cross-sell, bundling, pricing power. Low certainty, slower, heavily discounted.
Q30. Why would a company go private? Escape short-term public pressure & costs (listing, reporting, SOX); restructure/invest long-term with sponsor capital; often when management sees it as undervalued. Trade-off: less liquidity.
Q31. What makes a company attractive to a PE firm? Stable predictable cash flow to service debt; strong market position/moat; capex-light, recurring revenue; clear levers to improve; strong management; reasonable entry price; clear exit path.
Q32. What makes a bad LBO candidate? Volatile/cyclical earnings; high capex needs; already high leverage or valuation; structural decline; customer concentration. Cash flow can't reliably cover interest payments.
Q33. Why did Paramount/WBD interest you? Not the $110B headline but the risk stacked in one deal: $47B equity + $54B debt, 4.3x leverage only if $6B+ synergies land; 7.5x price is synergized (~12-13x without); DOJ cleared but 12 states sued.
Q34. What are the risks of the Paramount/WBD transaction? Legal (12-state suit, trial Mar 2027); cost of delay (~$7M/day ticking fee); leverage (4.3x, $54B debt); synergy delivery ($6B+); remedies could force asset sales; linear TV decline; WGA suit.
Q35. What are synergies? (Paramount/WBD) Over $6B expected, all COST synergies: tech integration, procurement, real estate, corporate efficiencies. No revenue synergies in the headline number. Implies ~12.7x unsynergized (my math).
Q36. What is antitrust risk? Chance a deal is blocked/delayed/reshaped for reducing competition (Clayton Act Sec.7). DOJ cleared it, but 12 states sued over film distribution & cable licensing share. $7B fee if deal fails.
Q37. Why Reddit? 1) ~130M daily, 514.6M weekly users with intent. 2) Ads ~95% of revenue (+64%), 91% gross margin, ~43% Adj EBITDA margin, ~$261M FCF/qtr, low capex. 3) US ARPU $11.85 vs $2.26 intl = runway.
Q38. What are Reddit's revenue streams? Advertising: $762M Q2'26 (~95%, +64%). Other: $43M (~5%, +24%), mostly data licensing (Google, OpenAI). Licensing ~$140M in 2025 vs ~$2.2B total revenue. Ads pay bills; licensing is upside.
Q39. What is Reddit's biggest risk? Dependence on Google search for user growth. ~60% of daily users logged out (+27%) vs logged-in +7%. AI answers/algorithm changes can cut referral traffic; mgmt called it 'choppy', stock fell 11%.
Q40. If you had $10M, would you invest in Reddit? Either answer defensible. Yes (staged): half now, half after Google/OpenAI renewal & Q3 earnings; 60%+ growth, FCF-positive, no debt. Not yet: ~17x Adj EBITDA, flat US logged-in users, binary renewal risk.
Created by: user-2060901
 

 



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