In the digital age, where every click, view, and interaction is meticulously tracked, many businesses need to track user engagement. One metric that has become a standard tool for that purpose is monthly active users, often shortened to MAU or MAUs. But what exactly does it mean, and why should investors care? Let's have a look.
What are MAUs?
What are monthly active users?
Monthly active users, or MAU, refers to the number of unique users who engage with an application, service, or website at least once within a 30-day period. It's a metric used by digital platforms to measure user engagement and growth. This metric is closely monitored by social media platforms, media-streaming services, and software-as-a-service (SaaS) providers.
Think of it as a digital headcount, tallying up everyone who pops by for a visit, whether they're daily visitors or just passing through once a month.
Why it's important
Why should you care about MAU?
Understanding MAU is crucial for investors and businesses alike. For companies, it provides insight into user engagement, product value, and potential areas of improvement. A rising MAU suggests that the platform or app is resonating with its audience, while a declining MAU might indicate waning interest or increased competition.
For investors, MAU can be a golden ticket to gauge a company's health and growth potential. Companies with a high MAU often have a loyal user base, which can translate to consistent revenue streams. Many companies that monitor MAU also benefit from the consistent revenue generated by monthly subscription fees. Subscription-based business models and MAU measurements often go hand in hand. However, MAUs are also important to ad-based services.
In the world of tech stocks, where traditional valuation metrics might not always apply, MAU can offer a tangible measure of a company's appeal and staying power. In some cases, investors pay more attention to the rise and fall in total subscribers or MAUs than they do to revenues or profits.
How to use it
So, you know what MAU is. Now what?
Understanding MAU can be a valuable tool in your investment toolkit. When evaluating potential investments in the tech or digital space, consider the company's MAU trends. Is it growing? Is it stagnant? Or is it declining? How does the MAU value compare to other companies in the same sector?
If the company you're assessing has added MAUs in recent quarters while rivals saw lower numbers, this company likely is winning market share in terms of user engagement. These trends can offer insights into the company's future prospects.
Moreover, some companies supplement their MAU figures with other engagement metrics, such as daily active users (DAU) or weekly active users (WAU). This practice is fairly common among social media companies, where frequent user engagement is king.
It's a helpful reporting model, too. Breaking usage patterns down into different portion sizes can provide a more comprehensive view of trends. For instance, a high MAU with a low DAU might indicate that while many users visit monthly, fewer people see the service as a daily must-have.
Lastly, remember that while MAU is a valuable metric, it's just one piece of the larger puzzle. Always consider it in conjunction with other financial and operational metrics to get a holistic view of a company's health and potential.
Related investing topics
Example
Spotlight on Spotify: MAU takes center stage
Music-streaming veteran Spotify (SPOT 11.63%) is all about monthly active users.
The company puts MAU figures front and center in its quarterly reports. The first three results you see in Spotify's reports are total MAUs, the number of premium subscribers, and MAUs for the ad-supported version of Spotify's service. This has been Spotify's preferred reporting format since it entered the public stock market in 2018. MAU results come first, and financial details are pushed further down the page.
The published figures are enough to let investors work out MAU details separately for premium subscribers and users of the free-to-use, ad-supported service. Keeping a close eye on these figures can help you suss out important business trends. For example, it's a good sign when Spotify's premium MAUs figure is rising faster than the number of premium subscribers. It's always good to see your most lucrative customer class showing stronger loyalty.
Management's commentary in earnings reports and conference calls follows the same lines. Spotify's leaders aim for high and rising MAU figures, with the idea that financial strength will follow from a large and active user community.
So, MAU figures come in handy whenever you're looking at a business that generates revenue from subscribers and/or advertising. In some cases, like Spotify, your analysis could start with MAU results with limited support from financial metrics such as revenues, earnings, and free cash flows. That is, after all, how the company's C-suite team manages the company.
