CFA Level I · CFA Level I Exam · Industry and Competitive Analysis
An analyst is refining a peer group for a company whose revenue is 70% from consumer software subscriptions and 30% from hardware. Which candidate peer is most likely the most appropriate to retain?
The software firm with 75% subscription and 25% hardware revenue is the most appropriate peer. Its revenue mix closely resembles the subject company's, whereas the other candidates derive most revenue from different activities and would have different growth, margin and risk profiles.
- AA software firm with 75% subscription revenue and 25% hardware revenueCorrect
- BA hardware maker with 95% device revenue
- CA bank with a large software development division
Explanation
Peers should have similar business activities and revenue sources. The first candidate has a revenue mix close to the subject company's. The hardware maker is dominated by a different source of revenue, and the bank's principal activity is financial intermediation.
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