Fincredible MacroTalk May 12: (X)aaS - Every company wants to be a part of the subscription economy
Company executive comments on subscription-based business models, including advantages, challenges, and results.
The ‘OG’ or torchbearer of subscription services have been SaaS or software-as-a-service companies. The companies and their shareholders have been rewarded, with their market cap increasing 9X since 2014 and average price-to-sales ratio currently at over 17X (yes P/S, not P/E). You can find more details at The BVP Nasdaq Emerging Cloud Index.
What’s not to like? They can increase the lifetime value of customers and the visibility of future cash flows. Customers like not having to pay large sums up front and the need for their vendors to earn their business each month or year.
Now every company wants in on the action. In the past 5 years, Apple has increased its recurring revenues from single digits to 23% of revenues. You’ll see General Motors trying as well.
But not every company is able to make this transition smoothly. In the past couple of weeks, several company executives have talked about subscriptions, including their views on challenges, upside, transition, and overall success of these strategies.
In this post, we have highlighted a handful of quotes. As always, email analyst@fincredible.ai, if you’d like to search across all or specific company earning calls, to get important facts or quotes.
Communications Services
Several communications services companies have successfully moved from ad-centric models to subscription-centric models. Online newspapers have had huge success, while music and video companies too. However, one executive from iHeart media was skeptical that podcasts would have the same success.
“The Times finished the first quarter with more than 7.8 million paid subscriptions across our digital and print products, more than 100 million registered users and an average weekly audience of 76 million readers. That foundation plus our unmatched journalistic breadth in a market of at least 100 million people who are expected to pay for English-language journalism rounds our conviction that we can substantially and profitably scale paid subscriptions over time. Our strong financial results in the first quarter demonstrate the success of our strategy and the promise of our large and growing digital subscription business.”
Meredith A. Kopit Levien - President, CEO
“Digital subscriptions continue to grow at a rapid rate up 58% compared to the prior year and we grew digital only subscription revenues, 68% as well. We now have 309,000 paid digital subscriptions, which is helping us drive audience revenue performance. These metrics demonstrate where the fastest growing digital subscription platform in local media. Each month in the second quarter, we saw sequential growth in total paid subscribers. This means that the growth of our digital only subscribers is outpacing the declines of our full access subscribers returning to total paid audience growth is a significant milestone for Lee.”
Kevin D. Mowbray - President, CEO
“For those of you new to podcasting and who've been watching the recent news stories, I want to remind you that the economics in the podcast industry accrue to the publisher, not the distributor. And although we're a major distributor through the iHeartRadio app, our economics come from our publishing. Additionally, we have yet to see any evidence that the subscription model will work in podcasting, except for perhaps in select niche products. For perspective, Netflix and other streaming video services are examples of lowering cost for consumers through a flat rate subscription versus on a la carte pricing, not increasing the cost. And in our experience as marketers, we've never seen a free product move to a pay product successfully.”
Michael B. McGuinness - Executive VP, Deputy CFO
“By the end of 2021, we'll have launched subscription streaming services led by Paramount+ in 25 markets. And now we plan to almost double that by the end of 2022 when our global streaming footprint will reach 45 markets, all in less than 2 years. Net-net, we're thrilled with the performance of Paramount+ thus far. Our strategy is working. We're investing in content with a disciplined approach. We have a lot in the pipeline, and we look forward to what's to come.”
Anthony Joseph DiClemente - EVP of IR
ViacomCBS Q1 2021 Earnings Call
Consumer Cyclical
Due to the nature of their demand, consumer cyclical companies have a lot to gain from moving to subscription-based models. If these companies can effectively set up their subscriptions so that demand fluctuation is reduced, it can help mitigate risk.
“As businesses accelerate their pace in digital transformation investments and start to integrate more freelancers into their workflows, we expect this trend to remain at this elevated level going forward. To continue capitalizing on these trends, we are investing aggressively to expand the lifetime value of our new cohorts by providing products such as milestones and subscriptions.”
Ofer Katz – President
“We also continue to test PF+, our digital-only subscriptions for $5.99 per month. More than 30% of PF+ members joined Planet Fitness locations after subscribing, hence demonstrating our "digital as a gateway to bricks-and-mortar" strategy. This is up from 20% in Q4. Additionally, 65% of our members who have subscribed have visited our core bricks-and-mortar offerings since subscribing. Beyond just being a gateway, more than 80% of the total PF+ subscriber base are members, an indication that members see the value and are willing to pay more to get more. This is where we believe we can offer real value to our members.”
Christopher J. Rondeau – CEO
“Later in the decade, I believe, and there's a lot to still unfold, but I believe we'll have personal autonomous vehicles, and then that will leverage the capability we have at Cruise with the capability that we have at the car company to really be well positioned to delight the customers from that perspective. So both paths are very important because the technology we put on vehicles today, I think, makes them safer and delights the customers, and it's going to give us an opportunity for subscription revenue. And then the ultimate work that we're doing at Cruise, I think that is full autonomous, really opens up more possibilities than I think we can outline today.”
Mary T. Barra - Chairman & CEO
Technology
In technology, the switch from a one-time purchase to subscription-based software is very natural. SaaS companies have been doing it for decades. However, some hardware-focused companies like GoPro have also successfully started switching to subscription-centric businesses.
“First, I want to congratulate our team for driving GoPro's subscription business past 1 million subscribers, an exciting milestone we achieved in April. This represents growth of 80% year-to-date and 180% year-over-year. Equally exciting is that 1 million GoPro subscribers represents approximately $50 million of high-margin annual recurring revenue for GoPro. I also want to congratulate our team on growing direct-to-consumer sales at gopro.com to 40% of total revenue for the quarter, up from 33% in Q4 2020. This also helps drive margin and subscriber growth as more than 90% of camera purchases at gopro.com result in a subscription attached. This is the new GoPro. We've evolved from a hardware unit sales-centric business to a successful consumer-direct subscription-centric business with a significant opportunity to grow margin and profitability with continued subscriber growth.”
Nicholas D. Woodman - Founder, CEO
“So the way it's going to work is we're going to take vendors that we currently have right now that are moving to a subscription-based model and also new vendors that just need to go into that model. And it's going to be a log-in platform or marketplace. So our customers, of course they have to have all the background information done for credit facilities, things like that set up, they'd log into the marketplace, and then they can start buying licenses, online adjuster licenses for their customers. So remember we're working with their resellers. So the resellers will have their own instance running to manage their licenses for their, in a hundreds or thousands of end users. And you'll see more and more the vendors moving in that direction, because the subscription is popular.”
Dale Richard Foster – CEO
“So one of the big things we are -- the prerequisite to providing a subscription. So lot of people are looking at subscription-based deployment models, and in order to do that, you have to have a software-only solution. And so what we have done with the software solution in the past is build this ability to offer subscription-based solution as well as perhaps offer some SaaS offering where we maintain the product for the customer. So our new strategy or expanded strategy for new logo wins, is going to rely on those 2 aspects, using our software products but in the enterprise, but offer it as a -- also offer it as a subscription and SaaS-based models, which solves 2 problem, 1 is that initial investment is low for the customer and they don't need to learn the product as much as they had to do in the past.”
Anil K. Singhal - Co-Founder, President, CEO
“We sell a meaningful amount of perpetual software bundled with the hardware. So when hardware grows like it did in the first quarter, perpetual software grows. We are in the process of transitioning from perpetual to subscription.”
David G. Barnes – CFO
Healthcare
Insurance work in a similar fashion to subscription-based models, so change in this sector is less likely. However, in animal care, Heska has been getting great results from their subscription service for veterinary point-of-care diagnostic.
Q: Can you just give us an update on the scil business and its transition over to a subscription model?
“Spain is our first major initiative, and it's going great. We haven't had any pushback at all. We do have a very large competitor that also goes to market under subscriptions, and I think they're succeeding in those markets as well. We are just now starting to push that out throughout the rest of the scil business -- so think Germany, France, Italy -- and again, getting really good positive early results. So we don't really see an issue.”
Kevin S. Wilson - CEO
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