Metadata
- Author: CJ Gustafson
- Full Title:: Will AI Mess Up Revenue Multiples?
- Category:: 🗞️Articles
- Document Tags:: Metrics,
- URL:: https://www.mostlymetrics.com/p/will-ai-mess-up-revenue-multiples
- Finished date:: 2024-10-28
Highlights
Kyle pointed out something that’s easy to gloss over—there’s a big difference between recurring and reoccurring revenue. Let’s break it down: • Recurring revenue is predictable, happening at regular intervals for the same amount. Think about my monthly Spotify subscription of $11.99, billed like clockwork. • Reoccurring revenue happens more than once, but it’s irregular, both in timing and amount. Think Uber rides or payments revenue for a company like Toast—restaurants continue to use the service, but the amounts vary. (View Highlight)
with AI products, margins are often worse than classic SaaS. Some AI products even have negative or highly variable margins. Plus, AI revenue isn’t as predictable, with high churn from early adopters who might not have a mission-critical use case yet. ARR won’t be the best predictor of valuations for AI companies. (View Highlight)
If ARR multiples don’t work as well for AI companies, what’s next? Kyle suggests we start thinking about annual revenue run rate (ARRR) instead. This would capture all types of revenue—whether it’s from software, AI, or payments—and then assess the quality of that revenue based on mix. We should be asking: what’s the margin? How predictable is it? How sticky is the customer base? (View Highlight)