Businesses that diversify their revenue streams deliver higher returns for shareholders, a new study from Stryber has shown, while those with core focus risk long-term value destruction.
A study of 738 listed companies in Europe between 2010-2023 found those which diversified their revenue streams delivered significantly higher annualised returns for shareholders and this jumped three-fold in the wake of the Covid-19 pandemic.
In the period between 2010-2019, businesses that had consciously added revenue streams delivered 16% superior annual median total shareholder returns. In the years from 2020-2023, this figure shot up to 53%.
Stryber said that the research also revealed that the ability of an organisation to diversify is more impactful than the level of diversification. According to the growth consultancy, firms that focused on their core business gradually experienced a 6% lower annual total shareholder return, which dropped to -14.2% compared to the median annual total shareholder return during 2020-2023. In contrast, the businesses that continuously diversified achieved a 32.8% advantage.
Jan Sedlacek, co-founder and managing partner at Stryber, said: “Our research demonstrates that diversification is not only a strategy for growth but also a hedge against market volatility. Companies that focus solely on their core business may see short-term efficiency gains, but they risk long-term value destruction.
“On the other hand, if they have the capability to add new revenue streams, whether through M&A or venture building, they are better positioned to weather economic uncertainty and deliver long-term value to shareholders.”
