Apple Finds Its Mojo

Apple’s stock shot up post-market after the company reported its strongest revenue growth in 4 years.

August 01, 2025

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🎯 In this issue:

  • Banana Bits: Finance headlines that actually matter

  • What’s Ripe / Rotten: The tastiest and most disgusting stocks today

  • Technical Trip: Interview Question from Jane Street

  • Lesson from the Library: Private Equity course sneak peek

  • Deal Deep Dive: M&A, IPO, and transaction breakdowns

  • The Daily Poll: See how you stack up

Market Snapshot

📉 Banana Bits

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What's Ripe

Meta Platforms (META) 11.3%

  • Meta’s stock took off after the company reported stronger-than-expected earnings and increased guidance. EPS of $7.14 beat the consensus of $5.92, and revenue of $47.52bn beat $44.80bn expected. The upside was driven by ad revenue and greater cost efficiency.

  • The company forecasts $47.5bn - $50.5bn in revenue next quarter, well ahead of Wall Street’s expectations of $46.1bn. Capex was also increased from $64bn to $72bn. 

Roblox (RBLX) 10.3%

  • Roblox beat and raised guidance, driven by a 51% increase in net bookings on the gaming platform to $1.4bn. Daily active users were also up 41% to 111.8mn.

  • The company expects net bookings to increase to $1.59bn - $1.64bn next quarter as it invests strategically into infrastructure, game discovery, and its virtual economy.

What's Rotten

Align Technology (ALGN) 36.6%

  • Apparently, people are spending less on their teeth. Not a great sign for a society. Reported EPS of $2.49 slipped 1.6% from last year

  • The company said it plans to take “a series of actions in the second half to streamline operations and reallocate resources,” which basically means firing a bunch of people to save money.

Shake Shack (SHAK) 14.6%

  • Brutal. Shake Shack beat earnings, and the stock still got crushed. Sales were up 12% YoY to $356mn and well above consensus.

  • However, it’s always the guidance that makes investors worry. Q3 guide of $361mn fell short of expectations for $364mn

🧠 Technical Trip

Interview Question from Jane Street

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📚 Stock Analysis

IPO Valuation Done Like A Pro

Have you ever wondered how professional investors come up with and actually justify a specific price target for a stock? We’ve put together a quick case study outlining one potential framework an Analyst could use, illustrating RDDT’s IPO from last year. Let’s dive in.

RDDT IPO Details 

Step 1: Selecting the appropriate valuation metric. We’re going to value RDDT based on EV/Sales because:

  1. At the time of the IPO, RDDT does not generate profit and might not for the next year or 2, so P/E is meaningless.

  2. If you’re buying a company this young and early in its monetizing stage, you are buying into a growth story pertaining to top-line revenue and a massive user base that hasn’t been fully exploited yet. Once the company matures and has fully scaled, then investors will focus on how well it executes its business plan to increase margins and focus on EV/EBIT or EV/EBITDA.

  3. The simple way to look at it is, if I’m investing in this company, what am I paying for right now? And for Reddit, the answer is growth in sales, growth in the user base, and potential future scalability.

Step 2: What is RDDT’s implied EV/Sales at the IPO price based on the info we have? 

Remember, valuation metrics are not based on what the company did in the past but on the expectations for the future. Here’s a very condensed version of the company’s income statement and forward-looking assumptions at the time of the IPO:

We’ve got 2022 actuals and 2023 actuals. The Street was projecting 25% revenue growth for 2024, which translates to revenue of $1,005mn. Going back to our Enterprise value calculation above, this implies an EV/Sales ’24 of 5.1x at IPO price.  

Step 3: Select appropriate comps and determine whether the multiple reflects fair value.

Let’s look at the comps, Pinterest and Snap. Why were these chosen? Basically, at a high level, their business models are essentially the same, and they have the same key revenue drivers: Advertisement-based social media platforms.

 

Based on the (very condensed) comp table, we can point out a few things.

  1. PINS trades at 5.0x ’24 revenue, and the market expects 19% growth. If we divide EV/Sales by the revenue growth rate, we get a growth-adjusted EV/Sales of 0.3x.

  2. SNAP trades at a lower multiple (3.6x), partly reflecting the fact that investors are discounting its growth prospects as a company and its long-term viability.

  3. RDDT has higher anticipated growth than both companies and trades at a higher multiple than SNAP, but is still on par with PINS. Therefore, you could probably justify a higher multiple for RDDT. Mathematically, if you kept raising RDDT’s EV/Sales ’24 multiple to match what PINS trades at on a growth-adjusted basis, you’d be able to justify a 6.5x – 7.0x multiple for RDDT.

Step 4: Great, so we’ve decided that RDDT should trade between 6.5x – 7.0x EV/Sales. What does this imply for the price? If we work the formula backward, we get this:

 

So, we’ve developed a price target range of $41.43 - $44.10 based on 6.5x – 7.0x EV/Sales in ’24, which reflects 22% - 30% upside.

Combined with an internal DCF, this is mathematically how an analyst would justify their price target. This target was based on multiple expansions.

That multiple expansion was based on the hypothesis that the market was undervaluing RDDT’s growth potential because of a new revenue stream (AI licensing), leading to more diversification and a structurally better business in the long term.

But remember, stock prices don’t always need a multiple re-rating for the price to increase. Let’s look at an example of this:

We’ve decided the fair multiple is between 6.5x and 7.0x. That multiple range, assuming $1,005mn in ’24 revenue, implies a price target of $41.43-$44.10 (based on our math from the above chart). But that is just estimated revenue, not an actual data point!

If Reddit comes in with earnings that crush the projections (which they did in real life), how does that change the stock price?

Reddit’s actual FY ’24 revenue was $1,321mn. Let’s work the formula the exact same way we did before

The actual revenue reported implies a price range of $52.32 - $55.83, reflecting 54% - 64% upside. The multiple hasn’t changed at all, only the earnings print, which beat both the company’s own guidance and the Street’s expectations.

On the day of the earnings announcement, the stock should theoretically move up to that price to reflect the new valuation. Hence, RDDT’s stock jumped after last night’s earnings report showed higher-than-forecast sales.

🦈 Deal News

M&A, IPOs, And Other Notable Transactions

📊The Daily Poll

Apple’s best revenue in 4 years =

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Banana Brain Teaser

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If 1 + (1/x) = 2 - (2/x), then x = ?

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Today

Of 30 applicants for a job, 14 had at least 4 years of experience, 18 had degrees, and 3 had less than 4 years of experience and did not have a degree. How many of the applicants had at least 4 years of experience and a degree?

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Managers and investors alike understand that accounting numbers are the beginning, not the end, of business valuation.

Warren Buffett

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Happy Investing,
Chris, Vyom, Ankit, Colin, & Patrick