Average revenue per user (ARPU) is the measure of revenue generated per user or unit. ARPU, a non-GAAP measure, allows management of a company as well as investors to refine their analysis of a company's revenue generation capability and growth at the per-customer level.
Breaking Down Average Revenue Per User (ARPU)
Average revenue per user (ARPU) is the equivalent to total revenue divided by average users during a period. The period end-date is not the measure date for the denominator because the number of units can fluctuate intra-period. Instead, the beginning of the period and the end of the period numbers are typically averaged. A weighted average could also be used, if appropriate.
Who Uses Average Revenue Per User?
The measure is used in the telecommunications sector by Verizon, AT&T, and others, for example, to track the amount of revenue generated per mobile phone user. Cable companies such as Comcast also disclose ARPU figures. The values of the measures obtained can be used internally and externally as a comparison among subscriber-based companies and to assist in the forecasting of future service revenues produced from a customer base. Relatively new on the scene, social media companies like Facebook and Snap, though not subscriber-based—report ARPU numbers to investors. The difference in these measures between the two companies has some explanatory power for the large gaps in valuations. Facebook's average revenue per user in the third quarter of 2017 was $5.07, while Snap's ARPU was $1.17.
ARPU is a long-standing measure that is useful to management and analysts. However, one common critique is that it does not provide detailed information about a user base. It is only a macro-level measure. For instance, in the Facebook example above, there may be tens or hundreds of millions who have signed up as users but only seldom engage on the platform or perhaps not at all. The true ARPU figure could be distorted.