What annual recurring revenue can tell you
If you invest in a company that relies on subscription income, it's really important that you understand what's happening with that portion of revenue. Annual recurring revenue can show you if the subscription model is helping to build business, if the subscriptions were good at first but are now falling flat, or even if customers sign up and are immediately disappointed.
By evaluating ARR, you may be able to see where the subscription revenue is headed, provided nothing external changes in the next year (the world is unpredictable), and even how much of the market that may be captured by your company if you compare it to others in the industry.
ARR is much like other sources of revenue, just for companies that rely on subscriptions as a significant source of income. When choosing to invest in a new stock, it's vital to know where the income comes from, where it's going, and how it's changing over time.