Comment by throwawayoldie
6 months ago
And ARR is not revenue. It's "annualized recurring revenue": take one month's worth of revenue, multiply it by 12--and you get to pick which month makes the figures look most impressive.
6 months ago
And ARR is not revenue. It's "annualized recurring revenue": take one month's worth of revenue, multiply it by 12--and you get to pick which month makes the figures look most impressive.
Astonishing that that concept survived getting laughed out of the room long enough to actually become established as a term and an acronym.
So the "multiply by 12" thing is a slight corruption of ARR, which should be based on recurring revenue (i.e. subscriptions). Subscriptions are harder to game by e.g. channel-stuffing and should be much more stable than non-recurring revenue.
To steelman the original concept, annual revenue isn't a great measure for a young fast-growing company since you are averaging all the months of the last year, many of which aren't indicative of the trajectory of the company. E.g. if a company only had revenue the last 3 months, annual revenue is a bad measure. So you use MRR to get a better notion of instantaneous revenue, but you need to annualize it to make it a useful comparison (e.g. to compute a P/E ratio), so you use ARR.
Private investors will of course demand more detailed numbers like churn and an exact breakdown of "recurring" revenue. The real issue is that these aren't public companies, and so they have no obligation to report anything to the public, and their PR team carefully selects a couple nice sounding numbers.
It’s a KPI just like any KPI and it’s gamed. A lot of random financial metrics are like that. They were invented or coined as a short hand for something.
Different investors use different ratios and numbers (ARR, P/E, EV/EBITDA, etc) as a quick initial smoke screen. They mean different things in different industries during different times of a business’ lifecycle. BUT they are supposed to help you get a starting point to reduce noise. Not as a the 1 metric you base your investing strategy on.
I understand the importance of having data, and that any measurement can be gamed, but this one seems so tailored for tailoring that I struggle to understand how it was ever a good metric.
Even being generous it seems like it'd be too noisy to even assist in informing a good decision. Don't the overwhelmingly vast majority of businesses see periodic ebbs and flows over the course of a year?
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Just wait until companies start calculating it on future revenue from people on the trial period of subscriptions... I mean, if we aren't there already.
Any number that there isn't a law telling companies how to calculate it will always be a joke.
ARR traditionally is _annual_ recurring revenue. The notion that it may be interpreted as _annualized_ and extrapolatable from MRR is a very recent development, and I doubt that most people interpret it as that.
What does it tell you then, that the interpretation of "A" as "annualized" is the interpretation Anthropic, to name one, has chosen?
You don't get to pick the month. At least not with any half-serious audience.
We're not talking about a half-serious audience: we're talking about the collection of reposters of press releases we call "the media".
> At least not with any half-serious audience.
So I guess this rules out most SV venture capital
That's still not profit.
I know. It's a doubly-dubious figure.