While we all tend to look at the profit line and the bottom line, there are some important cost lines that we should look at as well. We are all familiar with the ARPU line which represents the average revenue per user. There was a bit of concern when ARPU declined from Q3 to Q4. That is a dynamic we do not like to see. A hidden bit of information is that on an operational basis the average cost per user went up. This is also not a good thing.
On a quarter over quarter basis the ARPU went from $12.14 to $12.12. During the same period the cost went from $9.21 to $9.59. The profit derived from each subscriber was less in Q4 than in Q3. Is it cause for alarm? No. Is it worth monitoring? Yes. Q4 can be an expensive quarter, and depending on the timing of booking costs and revenue, we can see a shift. One key is that over time we are seeing an overall decline in the cost side. That is good.
Another thing to consider going forward is the overall costs inclusive of debt. The trick there is that in some quarters we will see wild swings that exist because of paying off debt, pre-paying interest etc. The key with these debt payments is whether or not the company can service its debt. As long as the debt to EBITDA ratio is 4 to 1 there should be no real issue.
What we want to look for in Q1 is an ACPU at $9.15 or less. If the company can do this they will be on the path to making more dollars from each subscriber reach the bottom line. These pennies may seem insignificant, but the add up. The first hints of something beginning to level off will show on the cost side of the house.
This is just a quick observation for SiriusBuzz Premium members. The trend is fine. Just watch to see if we remain on the correct path.