What is ARPU? Investing Explained

In this series, we bust the jargon and explain a popular investing term or theme. Here it’s ARPU. 

A household cleaning product?

It is true that Arpu does sounds a bit like one of those sprays that promise to make kitchen surfaces sparkle. But the letters of this increasingly important acronym stand for Average Revenue Per User or Unit.

The number, which first started to appear in the wake of the dot.com boom of 2000, is a gauge of growth, but also a means to compare the performance of a company with that of its peers. It reveals how much money certain types of companies in the communications, media, software and telecoms sectors actually make.

Why the fuss about this number?

Arpu is a key metric for social media companies because they are ‘attention merchants’, trying to ensure that users return as often as possible to their platforms.

Arpu is also highly important for streaming services like Disney and Netflix, which are jostling for new subscribers in a ferociously competitive market.

Gauge of worth: Arpu is a key metric for social media companies because they are ‘attention merchants’

Consumers are price sensitive.

But it is also beginning to be claimed that the potential global audience for streaming services may have been overestimated, heightening the drama unfolding around Arpu numbers.

How is Arpu worked out?

The calculation is relatively simple. You divide revenue by the number of users over a specific time period, such as a month or a year. In the case of a service, such as some video games, where some customers pay and some do not, a company may calculate its Arppu – Average Revenue Per Paying User – including only users that make payments.

A number of companies like Twitter use mDAU, which stands for monetizable daily active usage, which shows the revenue made each day from the users of an app. Twitter’s Arpu is estimated to be about $4, against about $13 at Google. But maybe Elon Musk can encourage more users to pay for blue ticks to authenticate their accounts, having removed them last week.

Which Arpu figures are most closely watched?

The Arpu numbers produced by the streaming services are the most closely monitored by analysts, with Netflix providing separate numbers for each of its services – and for the different regions in which it operates.

During the first three months of this year, Netflix gained 1.19m new subscribers – fewer than expected, underlining the current challenges. But its Arpu did rise a little to $14.78 in the US and Canada. Other regions were less lucrative. The Arpu in Europe, the Middle East and Africa is $10.89 and $8.03 in the Asia Pacific region.

Disney+’s US Arpu is $6.68. But the Hulu service, in which Walt Disney group has stake, has an Arpu of $87.01. Apple does not publish Arpu figures for Apple+, which suggests that it may not yet be gaining traction. But Paramount+ from Paramount Global is forging ahead with an Arpu of about $9.

What about other companies?

The numbers produced by the likes of Amazon, Alphabet, which owns Google, and the Facebook, Instagram and WhatsApp group, Meta Platforms, are also widely scrutinised. Meta’s advertising power grab over the past decade is highlighted by the increase in its Arpu since 2011 when it stood at $5. By 2021, this reached $40.96, slipping back a little to $39.63 in 2022.

This post first appeared on Dailymail.co.uk