Ever create a model to value a subscription business?

[Andrew Stepner]

You guys ever create a model to value a subscription business? Using inputs like CAC and churn, etc?

Stepner

[Richard M]

Nope.  I've calc'd them ad hoc but no standardized model.  Right now I feel the growth assumptions are all just finger in the air: "Growing at 20% YoY!" where to me, I feel like new subs could drop to zero at any point in the next 5 years. (pricing power is a different story).

On Tue, Dec 31, 2019 at 11:32 PM Andrew Stepner <andrew...@gmail.com> wrote:

You guys ever create a model to value a subscription business? Using inputs like CAC and churn, etc?

Stepner

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Richard Mordini

[Andrew Stepner]

I used to be a decent fan of P/E ratio for back of the envelope valuation yardsticks, but it seems more and more with the new economy there are business strategies to grow without profitability which effectively invalidates P/E as a yardstick since there is intentionally no "E". I sometimes look at Rev/Sales as a ratio but it seems too imprecise. meanwhile there businesses are more and more often set in a subscription model where you have churn factors, growth factors, and you have CAC factors. It seems like it requires a new back of the envelope yardstick but I don't have a simple enough mental model on it to implement yet. I wish I did.

Meanwhile I am still using a bare bones DCF model based on revenue, earnings, and income margin, but it still feels imperfect.

Stepner

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