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Altti Laitinen and Jake Jyväsjärvi, Master’s students at the School of Business, carried out a comprehensive research report on recurring revenue and company valuation to support Alma Media in developing its financial reporting.

The project goal was to construct a multifaceted view on whether higher share of recurring cash flows can enhance company value, and if Alma Media should expand its financial reporting to more highlight its recurring revenue streams. To provide a well-rounded answer to the research question, students analysed peer company reporting practices, existing accounting research, and conducted interviews with leading industry experts. The project was carried out during spring 2022 and was presented to Alma Media management.

Based on the research findings, reporting recurring revenues can make a company more valuable by enhancing the predictability and transparency of cash flows, in other words, making them less risky, which should be reflected as lower discount rates. However, reporting recurring revenue can be value-enhancing only if the reporting practices appear to investors as transparent, consistent, and with sufficient supplementary information to draw necessary conclusions about the revenue streams. Examples of valuable supplementary information about recurring revenues would be, for example, average revenue per user and average subscription length.

Deep dive to media industry 

‘The students developed a deep understanding of Alma Media’s business operations and its playing field. This reflected in the project results – we experienced that the students were able to extract the most relevant information to find new insights for our decision-making. We are extremely pleased with the quality of the project, which exceeded even our highest expectations,’ say the members of the project steering group, CFO Juha Nuutinen and Elina Kukkonen, SVP of Communications and Brand.

The project team worked in an independent setting, using feedback received from Alma Media and project academic supervisor, Senior University Lecturer David Derichs to maintain the right direction throughout the project.

‘The project team did an excellent job of independently planning and executing the project and delivered a really impressive final project result - under my loose guidance, mostly on story lining and presentation. Results from this project will not just benefit Alma Media and the project team, but already found their way into other teaching settings here at Aalto University. Altogether, this project was a very pleasant experience, which also gave me food for thought and helped me to stay practically relevant,’ says Dr. David Derichs.

The students gained valuable working life skills and improved their general business thinking

Jake Jyväsjärvi thinks the project has been full of great learning experiences, but what really stood out was the data collection by interviewing industry experts. ‘Not only did the interviews give us valuable insights for the project, but also developed further our understanding in evaluating companies’ business models and the varying quality of different revenue streams. We were pleasantly surprised by the experts’ willingness to talk to us and the efficiency of obtaining relevant information.’

Apart from developing a deep understanding of the characteristics of recurring revenue as well as entailed benefits and challenges, the student team learned valuable project management skills. Overall, students view the project as a great preparation for working life transition.

For us, this was an opportunity to combine academic research with a real-life business problem and take responsibility both in the project execution and delivery of high-quality results. Efficient project management and the ability to extract relevant information are crucial skills in today’s working life, and we are happy to reflect that we succeeded to deliver an excellent and well-coordinated project,’ says Altti Laitinen.