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The fourth industrial revolution is changing business models, but also company values

Aswath Damodaran, Professor of Finance at New York University, has for a long time collected and published various financial information on publicly listed companies, including enterprise value multiples ( and In a way, enterprise value and EBITDA ratio are a prediction for the future and the trends underlying these predictions models seem to be changing. This, in turn, generates significant shift in our usual perceptions of how much a company is worth.

According to Damodaran, EV/EBITDA multiplier for online retail is 36 (!) while multiplier for traditional retail is just over 10. Annual growth for companies in the online retail sector is generally at least 20% - that kind of growth cannot be matched in traditional retail. Currently, the share of online retail in Estonia is small, approximately 2-3% of the business volume. But the statistics could be misleading because they do not sufficiently analyse the volume of goods purchased from online stores located outside of Estonia.

It is a fact that 5G networks are being deployed worldwide, artificial intelligence is advancing, computing speeds are increasing exponentially and automotive industries are being pressured by governments to develop technologies with lower emissions moving towards the development of electric vehicles. Keywords such as the sharing economy, internet of things (IoT), smart cities and automation are well known to all of us. Convergence of all these developments will lead to a situation where changes take place not over 10 years but much faster. Uber and Airbnb are only some examples from the recent past that quickly transformed established business models. What kind of opportunities and risks does this bring to Estonian economy and for local companies? We will see this in the next three to five years.

Entrepreneurs are facing choices

The only thing that seems certain is that the trend of digitalisation cannot be underestimated. The vast majority of entrepreneurs have already invested, or will need to invest in the near future, in e-solutions and technologies. Otherwise, today’s successful company may find itself as an outsider in a few years’ time when it’s already too late to take action. “The good old” is just not working in these rapidly changing circumstances.

In conclusion, during revolution there are always winners and losers. The ongoing 4th industrial revolution is no exception. Along with observing and praising or criticising newcomers, the companies and entire sectors in traditional industries are in existential risk of losing their place in the value chain. It means that companies will not only have to worry that the massive restructuring of the enterprise valuation model, brought about by the digital revolution, might declare them low value but they also need to constantly monitor technological developments so that breakthrough moments are not missed.


Illar Kaasik

Investment Agency