Cbeyond Inc. this week reported higher net losses and lower revenue as it struggles to add customers to its “Cbeyond 2.0" initiative, which focuses on cloud and managed services rather than legacy connectivity.
The service provider showed a net loss of $5.9 million in 2014’s first quarter, compared to a net loss of $600,000 a year earlier. Total revenue was down as well, from $119.9 million a year ago to $108.5 million, due in large part to fewer new buyers.
“Our focus on realigning our sales force to acquire higher-value customers has resulted in a lower number of new customers than we have achieved historically," Cbeyond told the SEC this week in a regulatory filing. “Because of this, in recent periods, customer churn has exceeded new customer growth, resulting in a decline in customers and total revenue. We expect similar trends in the near term until our realignment results in Cbeyond 2.0 customer revenue growth exceeding the revenue from churned Cbeyond 1.0 customers."
Cbeyond added that it expects the trend to continue “until our realignment results in Cbeyond 2.0 customer revenue growth exceeding the revenue from churned Cbeyond 1.0 customers."
Along those lines, churn increased somewhat to 1.7 percent, up from 1.6 percent in the first three months of 2013. Cbeyond said that’s due to losing smaller, price-sensitive customers “from whom we do not expect to be able to generate acceptable profit margins in the future. This shift in focus on retaining high-quality revenues rather than the number of customers served may result in a continued elevation of customer churn rates in the near term."
Despite the drawbacks as Cbeyond pursues its 2.0 strategy, there is some light, too. For example, 2.0 revenue went up 78.1 percent from the year-earlier quarter, reaching $24.5 million. It comprised 22.5 percent of Cbeyond’s overall revenue.
And, average revenue per user is increasing. Cbeyond said ARPU in the first quarter stepped up by $5, to $661. In the long run, the company expects its technology-dependent customers (the ones relying on cloud and managed services), and new product launches, will “continue to benefit ARPU."
“This expectation is evident by the current shift we are seeing between network, voice and data revenue, which declined 11.9 percent in the three months ended March 31, 2014, compared to the comparable period in 2013, and managed hosting and cloud revenue, which increased 30.9 percent in the three months ended March 31, 2014, compared to the comparable period in 2013."