There’s an old saying: “Money buys everything, a horse gets you there.” So, when looking at revenue, one shouldn’t just focus on its growth, but rather analyze it in relation to something that measures the efficiency of the input. Revenue in relation to invested capital or revenue in relation to the number of employees. Of course, revenue grows when new companies with some business operations are constantly consolidated into the group.
The fundamental problem with this company, and tech companies in general, is that the fees charged to customers do not cover the company’s costs. From economics class, we remember that when the price of a good decreases, its demand increases. Therefore, if a service is priced too low, it’s easier to acquire new customers and maintain a good retention rate. For the same reason, these metrics are not very interesting to me. “Recurring billing” bypasses the question of whether the good is critical to the customer’s business or more discretionary, in which case it can be cut from costs when difficult times arise. “Recurring billing” sounds like the contract is open-ended.
If too little is charged for a product, it’s scalable, very useful to the customer, and there isn’t much competition in the industry, then demand and revenue should explode. So, something in this story doesn’t hold true. The profit should turn positive, at which point we could start examining what the return on invested capital is and whether the company creates shareholder value through its existence. That always seems to be 5 years away.