Subject: Re: Costco
Here is one (reminder : all models have flaws, some are useful)
Retail Sales : 98% of Revenue x 0.90 Multiplier = 88.2
Subscription Revenue : 2% of Revenue x 10 Multiplier = 20.0


An alternative view of the business strategy is that the entire retail operation is merely a break-even (or near-break-even) service to their members to encourage people to become and stay members. The whole point of the business is the otherwise costless subscription revenue.

Value of retail earnings at negligible net profit margin after cost of operations, multiple of 15, maybe 15% of total company value.
Value of steadily growing subscriptions at 100% gross profit, multiple of 33 on net profit after tax from that, accounting for 85% of company value.

If I did my sums correctly that works out to roughly an overall multiple of about 28 on trailing net earnings, close to the average in the last ~15 years.

Jim