Great piece! I'm curious what your thoughts are on the expansion of Operating Leverage as the company moves to a more variable cost structure? I haven't done the modeling, but my gut is that the improvement of operating leverage coupled with revenue mix shift to higher margin subs will result in some pretty incredible bottom line growth over the next 12-18 months. I'm interested if this comes out in the wash re: valuation in your model. Thx!
You missed Subscriber Acquisition Cost. It was running at $1K/sub, which would take 5-7 years just to recoup Sales & Mkt expenses. Even with a <1% monthly churn, the average sub will be gone before that. But wait, it gets worse. For this quarter, if they cut S&M expense to $200M, they are guiding to only 20k new subs! Do the math, that’s $10k SAC. Long story short, they lose $ on every sub. They will never recoup the S&M expense alone, never mind all the other expenses. This is a zero!
Great piece! I'm curious what your thoughts are on the expansion of Operating Leverage as the company moves to a more variable cost structure? I haven't done the modeling, but my gut is that the improvement of operating leverage coupled with revenue mix shift to higher margin subs will result in some pretty incredible bottom line growth over the next 12-18 months. I'm interested if this comes out in the wash re: valuation in your model. Thx!
You missed Subscriber Acquisition Cost. It was running at $1K/sub, which would take 5-7 years just to recoup Sales & Mkt expenses. Even with a <1% monthly churn, the average sub will be gone before that. But wait, it gets worse. For this quarter, if they cut S&M expense to $200M, they are guiding to only 20k new subs! Do the math, that’s $10k SAC. Long story short, they lose $ on every sub. They will never recoup the S&M expense alone, never mind all the other expenses. This is a zero!