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Valuing Subscription-Based Businesses Using Publicly Disclosed Customer Data

51 Pages Posted: 10 Dec 2015 Last revised: 11 Oct 2016

Daniel McCarthy

Emory University - Department of Marketing

Peter Fader

University of Pennsylvania - Marketing Department

Bruce Hardie

London Business School

Date Written: October 9, 2016

Abstract

The growth of subscription-based commerce has seen a change in the types of data firms report to external shareholders. More than ever before, companies are discussing and disclosing data on the number of customers acquired and lost, customer lifetime value, and more. This has fueled an increasing interest in linking the value of a firm's customers to the overall value of the firm, with the term customer-based corporate valuation being using to describe such efforts. While a number of researchers in the fields of marketing and accounting have explored this idea, their underlying models of customer acquisition and retention do not adequately reflect the empirical realities associated with these behaviors, and the associated valuation models do not live up to the standards of finance professionals. We develop a framework for valuing subscription-based firms that addresses both issues, and apply it to data from Dish Network and Sirius XM Holdings.

Keywords: customer lifetime value; customer equity; valuation; shareholder value; DCF

JEL Classification: M31

Suggested Citation

McCarthy, Daniel and Fader, Peter and Hardie, Bruce, Valuing Subscription-Based Businesses Using Publicly Disclosed Customer Data (October 9, 2016). Available at SSRN: https://ssrn.com/abstract=2701093 or http://dx.doi.org/10.2139/ssrn.2701093

Daniel McCarthy (Contact Author)

Emory University - Department of Marketing ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States

Peter Fader

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

Bruce Hardie

London Business School ( email )

Regent's Park
London, NW1 4SA
United Kingdom

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