Question-and-Answer Session
Operator
(Operator Instructions)
Our first question comes from Colby Synesael from Merriman. Please go ahead.
Colby Synesael - Merriman Curhan Ford
Thank you for taking my question. So when I listen to what you guys just talked about, it sounds like you guys are expecting a higher subscriber acquisition cost, you are expecting churn to go up, and you are expecting to spend a significant amount of money for server consolidation. I was wondering what this is going to do to your cash balance and if you can give us a little bit more context in terms of how much these things are all going to actually cost in terms of actual dollars.
Jeffrey M. Stibel
Sure, and I will start and then I will turn it over to Gonzalo for some of the details. With regard to server consolidation, we do not expect to spend significant amounts. We expect to save significant amounts.
Colby Synesael - Merriman Curhan Ford
You expect to save -- sorry to interrupt, but it sounds like you expect to save over the long-term, but in order to actually move this process along, you are going to be spending money over the next quarter to actually make that happen. I was wondering what that cost is going to be.
Jeffrey M. Stibel
That cost should be more than offset by the savings incrementally.
Gonzalo Troncoso
And most of that cost is actually utilization of existing resources. There is very little added cost to the migration efforts.
Colby Synesael - Merriman Curhan Ford
Okay, and what about in terms of the subscriber acquisition cost? Gonzalo, in your comments you mentioned you would be comfortable spending up to $200. Is that where you think that is actually going to go? And in terms of churn, that has obviously continued to go up over the past few quarters. When do you guys actually get concerned that that number is beyond what you guys were expecting?
Gonzalo Troncoso
It is just a matter of mathematics. The lifetime value of a customer is determined by the inverse of churn, so 2.9% means 34 months of lifetime value and ARPU of $25, so what we have to do is what percentage of the total lifetime value will the SAC be? Now, if you look at our churn 3% range, if you are selling a lot more, mathematically your churn will show higher because you have more customers in the early life stages. That does not mean your churn or your economics have changed. It is just because you have so many more units that are now in the first 90 days of lifetime value that your total weighted churn looks higher, but that does not mean the economics have changed.
- To read the full transcript on Seeking Alpha, click here »
