You make a logical point, but the market seems to disagree. Take the recent Vonage IPO as an example. By all accounts the IPO was a disaster. They offered their shares at $17 and it is now trading <$13. From the financials it is clear --at least to me-- that Vonage has no future hope of profitability. Yet, they managed convince enough people to raise $500M and while their market cap has dropped from $2.6B, it is still $2B, which isn't bad considering. I mean this is a company that spends $279 per customer to acquire each one, which means it takes over 11 months just to recoup the marketing costs. In 2005, they acquired 870,000 new customers, which even if they had acquired for free they still wouldn't represent enough revenue to pay for operations.

This company simply will not survive and their financials show it. Yet, their market value is entirely based on their revenue and its ability to grow.


Tom DeReggi wrote:

I agree current profit is irrelevant, when considering company totals during the early growth period. But calcualted future Profit clearly is relevant, as far as how much profit will be made per sub, and how soon. Profitabilty can be misleading when jsut considering accounting paperwork (profit loss / balance sheets)

I'll give an example:

Lets say a company gets an ROI in 1 year. And had 4 years of selling subs. And by the 4th year, profit would be being made from each sub. But then lets says a company had a 100% growth spurt in the 5th year. And lets say there is a 1 year ROI, meaning 12 dollars needs to be spent for ever new dollar that is made. Because the growth rate of the company is so much higher in the later year, the expendatures are far greater than the revenue comming in from the samller customer base taken on the first 4 years. Thus, it appears the company is losing money and not profiting.

When in actuallity, the company has record high success. All pre-existing subs ARE 100% profitable, and lot of new growth has been made to replicate the previous years successful model.

So yes, profitable books may mean a company is not growing and not making new sales.

However, showing the average profit per sub, after the ROI period is a VERY relevant bit of information. Its what defines the value of the business model in my mind.

In other words:

Forcasted Profit margin based on current years proven track record.

Tom DeReggi
RapidDSL & Wireless, Inc
IntAirNet- Fixed Wireless Broadband

----- Original Message ----- From: "Matt Liotta" <[EMAIL PROTECTED]>
To: <[EMAIL PROTECTED]>; "WISPA General List" <>
Sent: Tuesday, May 30, 2006 6:19 PM
Subject: Re: [WISPA] This is HUGE!

Profit is irrelevant for an early stage growth company.


Peter R. wrote:

Because number of subs is the measuring stick.
Revenue is more important; but profit is the most important.
Not many can speak to profit, so they measure in subs.

- Peter

Matt Liotta wrote:

Not sure why the number of customers is even important when the quality of customers can vary so wildly. I run into WISPs regularly whose ARPU is barely above $100. At 1000 customers an ARPU of $100 is only $1.2M per year. That's a lot of radios and a lot of customers for very little revenue. Compare this to CBeyond, which is an Atlanta-based CLEC that in recent time went public. Today they have about 17,000 customers, but their ARPU is $761. With just 1000 customers, an ARPU of $761 would be worth $9.1M. Or to look at it a different way, with 17,000 customers an ARPU of $100 would only be $20.4M compared with the $155.2M they pull in now.

A WISP would be wise to raise their ARPU as opposed to the number of customers.


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