Professor Damodaran On User Together With Subscriber Businesses: The Good, The Bad Together With The Ugly!

From Musings on Markets:

In a serial of posts over the course of pedagogy of the lastly year, I argued that yous tin value users together with subscribers at businesses, using commencement principles inward valuation, together with receive got used the approach to value Uber riders, Amazon Prime members and Spotify & Netflix subscribers. With each iteration, I receive got learned a few things virtually user value together with ways of distinguishing betwixt user bases that tin exercise substantial value from user bases that non exclusively are incapable of creating value but tin actively destroy it. I was reminded of these principles this week, commencement equally I wrote about Walmart's $16 billion bid for 77% of Flipkart, a bargain at to the lowest degree partially motivated past times shopper numbers, together with then ane time again equally I read a news even virtually MoviePass and the potential demise of its "too expert to live true" model, together with finally equally I tripped over a LimeBike on my walk home. 

User Based Value

My travail to educate a user-based valuation model was triggered past times a comment that I got on a valuation that I had done of Uber virtually a twelvemonth agone on my blog. In that post, I approached Uber, equally I would whatever other business, together with valued it, based upon aggregated revenues, net income together with cash flows, discounted dorsum at a company-wide cost of capital. I was taken to trouble for applying an old-economy valuation approach to a new-economy companionship together with was told that that the companies of today derive their value from customers, users together with subscribers. While my initial reply was that yous cannot pay dividends alongside users, I realized that at that topographic point was a amount truth to the critique together with that companies are increasingly edifice their businesses around their members. 

Consequently, I went dorsum to valuation commencement principles, where the value of whatever property is a business office of its cashflows, increase together with risks, together with adapted that approach to valuing a user or subscriber:

To acquire from the value of existing users to the value of an entire company, I incorporated the value final result of novel users, bringing inward the cost of acquiring a novel user into the value:

I applied closure past times reckon all corporate costs that are non direct related to users or subscribers inward a corporate cost drag, a drag because it reduces the value of the business:...

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