Morgan Stanley IM: The Economics of Customer Businesses

Morgan Stanley IM: The Economics of Customer Businesses
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Calculating Customer-Based Corporate Valuation - This report focuses on the customer as the basic unit of analysis in understanding value.

25.05.2021 | 12:10 Uhr

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The idea of customer lifetime value (CLV) has been around for decades, but we believe that our discussion is richer and more nuanced than what many companies and analysts present.

  • Two influential marketing professors introduced a framework called customer-based corporate valuation (CBCV), which links customer economics to shareholder value. CBCV’s main contribution is that it provides a more robust way to forecast revenues than current models do.
  • We discuss the key elements of the CBCV model, including customers, revenues, and costs. We show the limitations of common ratios such as customer lifetime value to customer acquisition cost (LTV/CAC).
  • The report explores how companies can create consumer and supplier surplus, provides a case study on the postpaid segment of AT&T Mobility, examines trade-offs in the drivers of value, and explores common errors.


RISK CONSIDERATIONS

Predictions are based on current market conditions, subject to change, and may not necessarily come to pass.

There is no assurance that the techniques mentioned in this article will be successful in helping improve the accuracy of predictions. There is no assurance that a Portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the Portfolio will decline and that the value of Portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this Portfolio. Please be aware that this Portfolio may be subject to certain additional risks. In general, equities securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed countries. Privately placed and restricted securities may be subject to resale restrictions as well as a lack of publicly available information, which will increase their illiquidity and could adversely affect the ability to value and sell them (liquidity risk). Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks. Illiquid securities may be more difficult to sell and value than public traded securities (liquidity risk).

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