Subscription king Netflix has been trading at record highs. Recent IPOs from Spotify and Dropbox underscore the value investors place in subscription-based business models. And the growth in curated, home-delivered products available by subscription, one of the biggest recurring revenue stories, is exploding.
Led by providers such as Ipsy, Stitch Fix, Dollar Shave Club, and Blue Apron, subscription box services have grown by more than 100 percent in each of the past five years, according to a recent McKinsey & Company survey.
Traditional retailers like the Gap are racing to catch-up. All in all, CFOs responsible for top- and bottom-line growth at many of these subscriber based companies have been basking in the glory of recurring revenue.
But a closer look reveals a number of challenges on the horizon that could impact financial performance. The emergence of so many subscriber-based companies and services in the marketplace has created threats in the following areas:
Churn. Many subscription-based companies have been plagued by high churn rates, on average as high as 40 percent for subscription box business, according to McKinsey. That number is even higher for gourmet meal kit providers like Blue Apron, whose stock has floundered since its IPO in 2017.
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