Yes but Vonage is also a poor example of your arguement as 75% of their
expendatures is in advertising.
That means 75% of their expendatures could be stopped on demand immediately,
without reducing revenue.
How quickly could Vonage become profitable, when they reach the approrpiate
scale, and they stop marketing?
I haven't done the math, but it paints a different picture of potential
profitabilty.
Tom DeReggi
RapidDSL & Wireless, Inc
IntAirNet- Fixed Wireless Broadband
----- Original Message -----
From: "Matt Liotta" <[EMAIL PROTECTED]>
To: "WISPA General List" <wireless@wispa.org>
Sent: Tuesday, May 30, 2006 10:48 PM
Subject: Re: [WISPA] This is HUGE!
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.
-Matt
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" <wireless@wispa.org>
Sent: Tuesday, May 30, 2006 6:19 PM
Subject: Re: [WISPA] This is HUGE!
Profit is irrelevant for an early stage growth company.
-Matt
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.
-Matt
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