International Journal of Real Options and Strategy
Online ISSN : 2186-4667
ISSN-L : 2186-4667
Theoretical Paper
User-based Valuation of Digital Subscription Business Models
Robin SchneiderJunichi Imai
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JOURNAL FREE ACCESS

2020 Volume 8 Pages 1-26

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Abstract

Motivated by recent market developments, this study presents a stochastic user-based corporate valuation model, that is able to forecast user base development, estimate customer equity values for any contractual digital business and link it to the firm value of such companies. As no theory is as good as hard facts, we further venture to provide evidence for the accuracy of our model, by applying it to three real-world business cases.As a consequence of the increasing importance and exponential growth of digital technologies, a new class of digital business models has emerged. These powerful new business models and their implementation in the modern economy have substantially different characteristics from traditional business models, which is why traditional company valuation techniques often fall short in explaining the high market valuation of these companies. The purpose of this study is to develop a quantitative framework to value such companies based on user data rather than traditional financial performance measures.The study shows that the suggested customer equity estimates track the market capitalization of the investigated companies remarkably well. The study further provides some strategic insights for value-based management for these firms derived from comprehensive sensitivity analyses for the most crucial input parameters of the suggested model.

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© 2020 The Japan Association of Real Options and Strategy
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