Written report is limited to 3 pages of single-spaced 12 point text. If you wish, you may use a bullet format. You may include or attach appendices of any type of analysis you have prepared—excel analysis, tables, graphs, etc.
Answer Snap Inc. Questions:
1. What are the key challenges and opportunities of Snap’s business model and economic proposition?
2. What is driving Snap’s decision to go public in March 2017?
a. What factors lead Snap to believe that the market conditions are optimal for a large technology IPO in March 2017?
b. Compare the statistics and performance of Snap to its competitors at the time of their IPOs. (Great opportunity to use a summary chart, then give a couple lines about the “so what” of the chart.)
3. What are some of the reasons a company may choose to stay private longer? How might this potentially impact the broader market?
4. A Morgan Stanley analyst produced the financial forecasts provided in the supplemental workbook shortly after the offering. Assumptions were 9.7% WACC and 1,404 share outstanding. Under these assumptions, what would be the DCF estimate of Snap stock’s fair market value on per share basis?
a. How sensitive is this estimate of the stock price to assumptions about growth and WACC?
b. Do the assumptions and forecasts appear reasonable? What data would you use to assess that?
c. Analyze Snap’s DCF value under various alternative assumptions of your own.
i. What important changes would you make to the forecasts provided by Morgan Stanley?
ii. What discount rate would you recommend using in this DCF analysis? Assume a long-term government bond rate of 3.16%.
iii. How would you deal with the uncertainty associated with Snap’s future growth?
d. Do you believe that Snap underpriced its IPO? If so, why might it have done this and would you agree with that decision? If you were the CEO of a company undergoing an IPO, would you agree to underprice it at the time of the offering?
