LEVEL: Introductory

LENGTH: 45 minutes

SWOT Analysis
Lesson Overview
Starting from this lesson, students will explore tools and frameworks to
help them conduct fundamental analysis. This lesson will help students look
at specific investing choices. Why might we invest in one company and not
another? Throughout the lesson, students will learn how to evaluate companies,
industries and products using a SWOT (strengths,
weaknesses, opportunities and threats) analysis. INSIDE THE COMPETITION
Use SWOT to conduct qualitative
industry/company analysis.

Background Knowledge for Teachers

The competition requires
students to use both qualitative
The two main methods of analysis when conducting investment and quantitative analysis to
understand and evaluate the
research are fundamental and technical. This competition
value of the companies in which
curriculum will only focus on fundamental analysis at this point, they choose to invest.
as it is used most often for stocks. Fundamental analysis is a
method of measuring a security’s intrinsic value by examining
related economic and financial factors. SWOT is a strategic- MATERIALS
analysis framework used to identify strengths, weaknesses, Provided
opportunities and threats. It allows students to get a qualitative 1. “Talking Lyft, Uber and the
Flood of New Tech IPOs”
snapshot of companies that interest them. You will often hear article pdf (page 5)
the terms qualitative and quantitative research or analysis 2. Student Worksheet (page 4)
related to stock evaluation. Think of qualitative analysis as the Not Provided
non-quantifiable information you can find about a company, like Whiteboard, four different
colored post-it notes
its leadership choices, strategic alliances and other corporate
decisions and operations. All of these contribute to the strength
and challenges facing a company. Quantitative analysis refers STUDENT VOICES
to the numbers found in company reports, such as those on the The SWOT analysis has been a
balance sheet. Together, they provide deep insight into potential popular evaluation tool for the
investment choices. Wharton Global High School
Investment Competition since
its inception. We fondly
remember the “SWOT team,” led
Learning Objectives by teacher Aaron Greberman of
Bodine HS for International
At the end of this lesson, students will be able to: Affairs, which was among the
■ Define the four tenets of SWOT top global finalists in 2016.
Encourage your students to read
■ Use the SWOT framework to analyze industries and companies our story about SWOT to see
some other examples of Bodine
■ Evaluate stock choices on a qualitative level HS teams using the SWOT
analysis.

©2022 The Wharton School, The University of Pennsylvania

 SWOT
Analysis 2
Glossary Terms
Watch how Wharton faculty define and use the glossary terms presented in this lesson:
■ Company
■ Industry

Lesson Plan
SEQUENCE/TIME DETAILS

COMPANIES FROM THE WATCH LIST

Have students explain, in their own words, the relationship between risk and return, as
Engage well as the relationship between risk and portfolio management. It will be helpful to have
/5 mins students thinking about portfolios as we move through this lesson.
Ask students to bring up the stock watch list they created from the previous lesson
“Research and Analysis 1: Research Strategies for New Investors”. Which specific compa-
nies might they consider investing in? Throughout this exercise, encourage students to
provide rationale for their decisions. Why did they pick that company? Does their choice
make sense in terms of the client’s goals and interests?

SWOT stands for Strengths, Weaknesses, Opportunities and Threats. If you

have time, review our article on SWOT for a quick overview of the topic. Teachers can
also review this before class to familiarize themselves with the concept. Write out the
Definitions acronym and its accompanying components on a chalkboard or dry-erase board.
/5 mins Because the four tenets are somewhat intuitive, encourage students to provide
definitions. Even-tually, you should come up with something similar to these
definitions:
■ Strengths refer to those things that a company does well; in particular, strengths
refer to sources of competitive advantage — positive attributes that set one
company apart from its competitors. This might include things like customer
service, good products, a strong brand, etc.
■ Weaknesses refer to those areas where a company is lacking in comparison to its
competitors. These are often the opposite of strengths: bad customer service, bad
brand recognition (or poor reputation), unstable leadership.
■ Opportunities refer to external, or environmental factors that can help the
business. For example, independent of a company’s strengths or weaknesses,
opportunities might exist for growth in the industry. There might be a shift in
consumer preferences, or a change in industry regulation, all of which could
benefit a company in the long run.
■ Threats are external factors that could hurt a company’s prospects. The current
economic downturn that prevents people from spending or buying expensive
items, for instance, might be a threat to companies that sell luxury goods. A
startup business that is gaining traction in an industry might also be a threat.

©2022 The Wharton School, The University of Pennsylvania

 SWOT
Analysis 3
SWOT ANALYSIS FOR LYFT
Give the whole class five minutes to read through the article Talking Lyft, Uber and the
Guided Flood of New Tech IPOs. (pdf version of this article is on page 5) As students read, ask
Reading & them to build their own SWOT analysis of Lyft, based on their personal knowledge, as
Activity well as the information in the article.
/14 mins Draw the four quadrants of SWOT on the white board. Give students four different col-
ors of post-it notes and have them write down their ideas for each quadrant for Lyft and
post them on the white board. Then select four volunteers to group similar ideas in each
quadrant and present the class’s findings.

SWOT ANALYSIS FOR A COMPANY ON THE WATCH LIST

Break the class into competition groups or small groups of 4.
Practice 1. Give groups two minutes to select a company from one of the team member’s watch
/16 mins lists to do a SWOT analysis
2. Give groups 10 minutes to conduct the SWOT analysis for that company. Students
can use the worksheet on page 4.
3. Ask 3-4 groups to each present a 1-minute brief on their SWOT analysis.

CONNECT PORTFOLIO MANAGEMENT WITH SWOT

Ask students to give some thought about whether or not SWOT helps them select
Discussion companies that fit into their investment strategy. What about the client’s interests and
/5 mins preferences? For example, if the client is active in environmentally friendly initiatives,
would you still select a company that has been cited for pollution?

SWOT is a useful analysis on a qualitative level, but it should not be the only tool helping
investors make informed choices. Deeper analysis is encouraged!
Takeaways

©2022 The Wharton School, The University of Pennsylvania

 SWOT
Analysis 4
Student Worksheet
SWOT ANALYSIS
Selected company:

Strengths Weaknesses

Opportunities Threats

©2022 The Wharton School, The University of Pennsylvania

Talking Lyft, Uber and the Flood of New Tech IPOs

Date : April 10, 2019

When last we heard from Ari Berke, who is now a high school junior at Yevneh Academy in Dallas, Texas, he was
talking in a KWHS student essay about his fascination with investing in the stock market. He suggested that, “Many of
today’s teens are blind to the potential of the stock market in their lives. By flipping the narrative and educating teens
about the power of investing in brands, versus consuming them, our next generation could turn pocket money into major
spending power.”

So, when we considered the flurry of high-profile tech brands that are poised to go public through initial public
offerings, we wondered how Ari felt about the potential to invest in those businesses that would soon be selling their
shares on the market. Among the companies that have recently began offering shares to the public, or have plans to do so
soon, are rideshare competitors Lyft and Uber, hospitality platform Airbnb, image search site Pinterest and food delivery
company Postmates.

Do big brands automatically mean big investment potential? Not necessarily, cautions Berke. “Everyone knows that
these companies are well-known and money-making, and this knowledge is already factored into the stock price, so you
won’t be able to profit on [brand] alone,” says Berke, who plans to study finance in college and grad school. “The
company’s qualities of the past and present have already been factored into the stock price [when it goes public]. In fact,
much of the future has also been factored in, which is seen in a company’s P/E ratio; the P/E ratio is representative of
the amount of future years of earnings you are buying when you buy a company. The question is if you think they will
grow past expectations and why. When you buy a company’s stock, you are betting that either its earnings will surpass
expectations (which, for more famous companies like Uber will be pretty high) or that it can prove that it can maintain
its earnings for longer than expected.”

‘The Markets Are Hot’

We also turned to our reporting partners Knowledge@Wharton and the Knowledge@Wharton radio show on SiriusXM
for some of the latest IPO intel. As investors wait for these oncoming IPOs, checks in hand, they need to cautiously
consider if the pricing models for the companies in question are sustainable after customer-acquisition discounts wear
off, and growth decelerates as they get bigger, according to experts. They also need to factor in the impact on those
companies of increasing regulation – for example, more and more townships imposing restraints on Airbnb.

Beyond individual company concerns, however, scheduling seems to be on the side of companies that have decided to
go public in spring 2019.

The timing is ideal for IPOs because “the market is red hot,” said Timothy Loughran, professor of finance at Notre
Dame’s Mendoza College of Business. He noted that the S&P 500 rose by a record-setting 13.1% in the first quarter this
year – the best first quarter since 1988. “If I want to go public, I want to go public when investors are optimistic about
my future growth,” he added. He noted that although tech companies in the IPO markets like Lyft, Pinterest and Uber are
“burning cash,” they are commanding “high value” in the market.

“The markets are hot, and they won’t be hot forever,” said Wharton adjunct professor David Wessels, explaining why a
string of big-name IPOs are in line. Loughran did not think, however, that they are “really red hot,” pointing out that
2018 saw only 134 IPOs in the U.S., up from 107 in 2017. “I am not worried about an overheated market,” he said. “If I
were a manager, definitely now is the time I would think about going public.”
 The only advantage these IPOing companies have is being first to market, but that can slowly dissipate in a field
that is so susceptible to copying.” — Ari Berke

All eyes have been on Lyft, which has had a bumpy stock market ride since it went public on March 29, with a valuation
that rose from $24.3 billion to $26.6 billion and a share price of $87.24 — 21% above its IPO offer of $72. Since then, the
price has dropped to around $62 a share amid some negative reports from analysts.

Investors in IPOs are typically willing to overlook the losses tech companies incur in their initial growth years if they
view those losses as the cost of achieving a critical mass for future growth. However, not everything is clear about the
basis for those growth expectations. Lyft, for example, has seen increasing revenues the past three years, but its losses
have also increased, Loughran noted, citing its IPO filing. He was particularly struck by Lyft’s performance in 2016,
when it lost more money ($683 million) than its revenue ($343 million).

Some tech companies take time to establish themselves securely on a profitable path, like travel fare and lodgings
aggregator Booking Holdings, formerly Priceline.com. The 22-year-old company is “wildly profitable,” Wessels noted.
In 2018, Booking earned net profits of $4.4 billion on revenues of $14.5 billion.

In the Spotlight

The reasons for Lyft losing money are not entirely clear, Wessels suggested. “Are they losing money because they want
to expand in new geographic regions – that’s an investment in the future – or are they losing money because they can’t
make money?” Unlike Booking Holdings, Lyft has to invest in recruiting its freelance drivers and providing them
incentives to stay in the system, he pointed out. Lyft also has been subsidizing rides over its seven years in existence,
according to a Reuters report.

The transition from private to public companies will bring more clarity around the nagging issues involving this new
group of IPOs, because company information that was once private must now be made public for all to know and
analyze. “There will be an analyst community following them and asking tough questions,” said Wessels. For example,
in the case of Lyft, “maybe we’ll get a little bit better understanding of how much compensation is going to the drivers
to subsidize that system,” he added. “The subsidies will need to disappear, and at some point, it is going to have to be
profitable.”

Ari Berke, for one, is doing his research. “I have been monitoring the tech IPOs, but I haven’t considered buying any of
them,” notes Berke, who runs his school’s investment club. “I don’t see how any of these companies can combat
competition in their field, and time has shown that many of these “access” companies actually cannot. Uber used to have
a near-monopoly on ride-hailing services, but Lyft quickly exploded onto the scene. The same goes for UberEats and
Postmates. The only advantage these IPOing companies have is being first to market, but that can slowly dissipate in a
field that is so susceptible to copying.”