DEFINITION of 'Average Margin Per User - AMPU'

Average margin per user (AMPU) is a profitability metric for a subscriber-based business such as a wireless telecommunications or cable company. These companies generally do not publish AMPU in their reports, instead opting to disclose average revenue per user (ARPU), a standard measure widely used in the telecom and cable industries and other sectors that have quantifiable sets of subscribers, members or users.

BREAKING DOWN 'Average Margin Per User - AMPU'

ARPU is an industry standard measure, but AMPU is arguably more useful in assessing a firm's profitability. Increases in average revenues per user are desirable by the company, but if expenses are forced higher to achieve these revenue gains, then the firm's margins, or profitability, may not rise and could even contract. Average margin per user can be considered a better metric for management as it formulates pricing and marketing strategies and budgets cost items to maximize the bottom line.

AMPU Calculation Example

Telecom and cable companies do not provide AMPU tables, but you can find the numbers in their financial reports to calculate AMPU. One basic formula is operating revenues less operating expenses, divided by average users (or subscribers) for the period. In the following example, you will see that Verizon (wireless segment) had vastly superior AMPU figures in 2016 and 2017 over Sprint's. (AMPU, like ARPU, is expressed in monthly terms.)

Verizon:

  • 2017: $87.5 billion in operating revenues minus $58.3 billion in operating expenses, divided by average users of 148 million = $197.30, or $16.44 in AMPU.
  • 2016: $89.2 billion in operating revenues minus $59.3 billion in operating expenses, divided by average users of 143 million = $209.09, or $17.42 in AMPU.

Sprint:

  • 2017: $24.3 billion in operating revenues minus $21.8 billion in operating expenses, divided by average users of 56 million = $44.64, or $3.72 in AMPU.
  • 2016: $24.8 billion in operating revenues minus $23.5 billion in operating expenses, divided by average users of 58 million = $22.41, or $1.87 in AMPU.

Other than the substantial differences in AMPU between the two wireless companies, you can take note of the decline in Verizon's AMPU in 2017. The AMPU trend would be of interest to an investor and certainly should be to Verizon's management.

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