Please stand by. We are about to begin. Thank you for standing by, welcome to the MarketWise second quarter 2023 earnings call. During today's presentation, all parties on the webcast will be in a listen-only mode. Following the presentation, the conference will be opened for questions with instructions to follow at that time. In addition, for those on the live webcast, you may submit a question using the chat feature on the site. As a reminder, this call is being recorded. I would now like to hand the conference over to Jonathan Shanfield, Vice President of Investor Relations at MarketWise. Please go ahead, sir.
Thank you. Good morning. We appreciate you joining us on today's conference call to discuss MarketWise's second quarter 2023 financial results. With me today on the call, we have Amber Mason, our Chief Executive Officer, Stephen Park, Interim Chief Financial Officer, and Lee Harris, our Senior Vice President, Financial Planning & Analysis. Before we get started, I want to point out that we also have published a supplemental earnings presentation on the Investors section of our website at www.marketwise.com under the Quarterly Results tab. This document is designed to provide additional information and context to our current earnings release and 10-Q filing. For those of you participating in our conference call via live webcast, we are sharing a few slides to highlight certain information we are discussing during this call.
All the information presented in those slides is also available in the content of this call, our earnings press release, 10-Q filing, or in the supplemental earnings presentation I described above. During the course of today's call, we may make forward-looking statements, including but not limited to statements regarding our guidance and future financial performance, market demand, growth prospects, business strategies and plans, and our ability to attract and retain subscribers. These forward-looking statements are based on management's current views and assumptions and should not be relied upon as of any subsequent date, and we may disclaim obligation to update any forward-looking statements.
Actual results may vary from today's statements, including information concerning our risks, uncertainties, and other factors that could cause results to differ from these forward-looking statements are contained in the company's SEC filings, earnings press release, and supplemental information posted on the Investors section of the company's website. Our discussion today will include certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, but not as a substitute for or in isolation from GAAP measures. Reconciliations to non-GAAP measures can be found in our earnings press release and our SEC filings. Now I'll turn the call over to Amber.
Thanks, John. Good morning, everybody. Welcome to our second quarter 2023 earnings call. Before we get started, I want to welcome everyone watching us via webcast. I'm really excited about this. It's new for us on the investor relations side, but we've been talking to our subscribers and potential subscribers like this for years. Today, we're coming to you live from our Baltimore studio, where we create content for our subscribers, host webinars, and reach out to our audience of self-directed investors. I wanted to give you insight into our operations and let you see us work. I hope that you like the format as well as the content. I'm looking forward to your feedback. You can send it to ir@marketwise.com. Turning to this morning's call, I will provide a brief overview of our second quarter results.
I'll give you an update on the progress we're making with the goals I outlined on prior calls, and I'll give you a peek into what's going on at our affiliates, a look into our process, what we see working, and some new initiatives. Steve will take over and provide a more detailed review of our financial results. Let's get started. First, let's discuss our Q2 results. Frankly, what we experienced in the second quarter is a lot like what we've seen in the past few quarters. Investors and subscribers are still engaged and buying financial research, but at lower levels than we saw during the boom years of 2020 and 2021. The good news is that many of our internal metrics show that we've reached a plateau of sorts. Our billings and expenses are fairly flat to the prior quarter.
Engagement, as measured by landing page visits, is slightly up over the past three quarters. Our overall conversion rates are starting to show signs of improvement. Stock market sentiment seems to be shifting back to equities as inflation looks to moderate over the next year. It's very encouraging to see signs of stabilization in our results. While market volatility and economic uncertainty persisted through the second quarter, which continued to weigh on our results, we focused on creating new content and reaching new subscribers. We remained committed to managing our overhead costs and to directing our marketing spend where it is most efficient. Importantly, we successfully maintained our expense discipline during the quarter, as we have over the past year. In the second quarter of 2023, direct marketing spend was roughly $23 million lower on a cash basis than the second quarter of 2022.
Additionally, our overhead costs were down $1.5 million on the same basis. As I mentioned last quarter, we know our cost structure and we work hard to rein in costs when times are tough so that we can maintain our cash flow and profitability. Turning to our results in more detail, revenues on a GAAP basis were $103.6 million, a decline of 19% as compared to the prior year. Billings declined 18.2% year-over-year to $96.2 million. Importantly, our adjusted cash flow from operations was $29 million in 2Q 2023, an increase from $26.8 million in the second quarter of 2022, and a clear sign of our ability to generate positive cash flow in a challenging market.
Furthermore, our adjusted cash flow from operations margin for the first half of 2023 improved to 17%, as compared to 11% for the first half of 2022, reflecting the success of our cost reduction efforts over the past year. I would add that while GAAP revenues declined $22.6 million from the prior quarter, billings declined only $1 million. As a reminder, for GAAP purposes, we defer revenue over the life of a subscription, while non-GAAP billings represent current period cash received. In 2020 and 2021, we generated record quarterly billings, which increased our GAAP revenues for the subsequent quarters. That's beginning to tail off and our GAAP comparisons reflect that. Despite the difficult market environment, we're pleased with our ability to cut spending and increase our cash flow on both a quarterly and year-over-year basis.
We will continue to look for ways to improve efficiencies, cash flow, and profitability. Additionally, we have started to see improving trends in our business through June and July. While it's early, and we remain conservative, it's an encouraging trend. These green shoots appeared, as they always do, in our subscriber acquisition efforts. On previous calls, and in some of my conversations with you, I've noted that the most important thing we needed to do to start improving results was to figure out how to talk to prospective readers again. These are the folks we saw sitting on the sidelines. They required a new message that would get us a click, a sign-up, and order, a new subscriber. Of course, the backbone of our business is the folks who've been with us for a long time.
I'll get into that more later, to kickstart the business, we need to bring on new, high-quality readers, folks who will become long-term membership subscribers. To bring on new, high-quality readers, we need to find the right message. In 2022, the message changed. Themes that had been working for years stopped generating the same level of engagement, so we dialed back our marketing spend to focus on only the most efficient campaigns, and we dialed up our efforts to find the next Big Ideas. Each of our publishers is equipped to do this on their own very effectively. Each operates multiple brands that can feature different angles on the market, and when you put all of our publishers and all of our 13 brands together, we have a formidable engine of discovery. This, I believe, is a key driver of our durability as a business.
We have multiple affiliates that are essentially competitors, targeting the same potential customers. Where other businesses try to reduce redundancy, we embrace it because it means that every month, we can run dozens of different campaigns, and every day we can run dozens of different marketing experiments. In fact, during 2022, we ran almost 470 individual marketing campaigns. This is what allows us to find what works faster than any single affiliate could on its own, and that's always been in place. It's allowed us to manage the business through decades of boom and bust markets in stocks, commodities, cryptos, you name it. I'm working to accelerate learning throughout the business. I've put in place programs to identify and spread best practices, and I've increased the amount of reporting we share across the business.
Today, our key personnel can quickly seize on innovations and put them to work. Now, I'm focusing on marketing here, but this principle applies to every area of operations, from customer service to website design to new technologies, like artificial intelligence. It's early days, but I'm excited about the efficiencies we could achieve by integrating some of the newly available tech into our operations. Right now, though, I'm even more excited by the new line of business that AI is creating for us. Predictive Alpha Prime, for example, is a new AI-powered tool from our TradeSmith affiliate. It had a very successful launch in the quarter, which led to additional products leveraged from this launch, including an options trading product, a new entry-level product, and a bundled offering of all Predictive Alpha publications.
AI themes are driving new subscriptions at InvestorPlace, where the focus is on how to invest in AI and related products. We expect to see multiple new products and campaigns focusing on this sector throughout the rest of the year. We are always looking for ways to add value to our subscribers, the folks who know us well, including our high and ultra-high-value subscribers, who remain loyal to us over the long term. In fact, we have over 290,000 membership subscribers whose cumulative spend continues to increase despite the challenging environment. These membership subscribers typically sign on for an additional 5 subscriptions, including 1 additional membership subscription after their initial membership purchase. These long-term subscribers are the core of our renewal revenue, which is one of the best measures of the success of our business.
Over the past five quarters, we've averaged a total of $37 million in upgrade and renewal billings each quarter. These metrics support what we've known for over 20 years, that long-term subscribers are the heart of our business, and their trust and confidence in our publications reflect the value they find in our products. As I touched on earlier, we have started to see improving trends through the end of the second quarter and into July. Both investor engagement and conversions have improved slightly as we've seen some success in recent campaigns, as a result, we have begun to strategically increase some of our direct marketing spend. Consequently, we're starting to see an increase in subscriber acquisition, which is encouraging.
That said, I still want to caution that these results reflect only a few weeks of results, and it remains to be seen if this is a trend in overall subscriber activity or specific to certain campaigns that we have recently launched. Direct marketing spend is our largest variable spend, and while we have reduced that spend over the past year, we fully anticipate increasing our marketing expense as market conditions indicate. We also continue to work on ways to reward our shareholders. Last week, we announced our second quarterly dividend of $0.01 per share to our Class A shareholders and an equivalent distribution for our Class B shareholders. As of this morning, this represents a 2.2% annual yield. We're pleased to continue this dividend as it highlights our ability to generate positive annual cash flow even near the bottom of the cycle.
Over our 20-plus year history, our company has consistently returned capital to its owners. We are pleased to reward our shareholders with another dividend while working to increase total shareholder returns. We continue to also look for ways to add existing businesses that will complement our operations, including bringing on new editorial teams, software, and technologies. While we are actively looking for M&A opportunities, we are also committed to sound financial transactions with acceptable levels of risk and return for our shareholders. In terms of talent, retention, and acquisition, I'm happy to share that we've completed our search to bring a permanent CFO to MarketWise. As we announced a few weeks ago, Erik Mickels will be joining us later this month in the role of CFO. Erik is an experienced public company CFO and brings with him a wealth of knowledge in financial management, accounting, and navigating the public markets.
He also has hands-on experience bringing a private company to the public market via SPAC and all that comes with that transaction. We welcome Erik and look forward to his contributions going forward. I also want to take this opportunity to thank Stephen Park for his service to us as our interim CFO over the past few months. Steve is the consummate professional and joined us during a hectic time. He helped us get to the finish line for our year-end and first quarter reporting cycles, as Steve finishes his engagement with us, we wish him well and nothing but success for what comes ahead. The whole team, myself in particular, is very grateful for your expertise, time, and guidance. Thank you, Steve. With that said, I'll turn the call over to Steve to review the financial results of the quarter.
Thanks, Amber, and good morning, everyone. As we have seen for some time now, market and economic uncertainty continued to impact results through the second quarter. Early in the quarter, retail investors remained uneasy about the economy, inflation, and the potential for a recession later in the year. However, as Amber noted, many of our internal metrics are beginning to show signs of improvement. Toward the end of the quarter, retail investors began to pick up, and the stock market officially entered a bull market territory in mid-June. Our business began to reflect some of that improvement in late June, as we saw engagement and conversions begin to improve. Our costs, a few weeks doesn't make a trend, but we are seeing some green shoots in the landscape of financial publishing.
In the second quarter of 2023, our landing page visits were approximately 23 million, up 10% from first quarter 2023 levels. However, our overall conversion rate was approximately 2 basis points lower this quarter as compared to prior quarter. Looking at this more closely, we saw lower conversion rates earlier in the quarter as market uncertainty and volatility remained high. As the quarter progressed into June, we saw higher levels of engagement with improvement to the point where overall conversion for the quarter was only slightly off from prior quarter. That said, the 2 basis points decline is relatively small and appears to be moderating based on recent performance. As in the prior quarters, our subscribers have also slowed the pace of buying additional subscriptions, given the macroeconomic conditions.
Our customers continue to take a bit longer to move through their subscriber journeys with us than historically. However, even in this environment, our high-value and ultra-high-value subscribers continue to purchase additional subscriptions. As a result, our active cumulative spend by all subscribers reached another all-time high this quarter. This is just another indication of customer satisfaction and the value that subscribers find in our products, which is why they remain with us for the long term. Turning to the financials, GAAP revenue was $103.6 million this quarter, compared to $128 million for the second quarter of 2022, a decrease of $24.4 million, or 19%. The decrease in revenue was driven by a $15.6 million decrease in term subscription revenue and an $8.4 million decrease in membership subscription revenue.
Billings were $96.2 million compared to $117.5 million for the year-ago quarter, a decline of $21.3 million. That said, our billings are starting to level out as they only declined $1 million or 1% from the 2023 first quarter. Approximately 36% of our billings came from membership subscriptions, 63% from term subscriptions, and 1% from other billings in second quarter 2023. This compares to 38% of our billings coming from membership subscriptions, 61% from term subscriptions, and 1% from other billings for second quarter 2022. As we discussed in the prior quarter's call, our cost reduction initiative that we completed in 2022 was successful in reducing both run rate, overhead expense, and direct marketing expense through the end of 2022.
We continue to maintain these levels of efficiency throughout the first half of 2023. While we may begin to see the level of direct marketing expense increase in coming months, this will be in relation to increased landing page visits, conversions, and subscriptions. As we remind everyone, direct marketing is our largest variable expense, and as we see subscriber engagement and the per-unit cost of acquisition improve, we may look to increase our direct marketing spend from current levels and focus on subscriber acquisition. As a result of our effort to reduce costs and maintain efficiencies, we were able to improve our overall operating expense profile. On a GAAP basis, total operating expenses were reduced approximately $9.9 million or 9.5% as compared to second quarter 2022.
Cost of revenue was $14.6 million this quarter, compared to $16.2 million for the year-ago quarter, a decline of $1.6 million or 9.8%. This decline was driven primarily by a decrease of $0.8 million in salaries and related benefits expense, a $0.6 million decrease in credit card fees, and another $0.6 million decrease in outsourced customer service fees. Sales and marketing costs were $49 million this quarter, compared to $65.1 million in the year-ago quarter, a decrease of $16 million or 24.6%. This decrease was primarily driven by a $19.6 million decrease in direct marketing expense related to our cost reduction initiative, partially offset by a $3.7 million increase in the amortization of our deferred contract cost acquisitions.
General administrative costs this quarter were $27.6 million as compared to $20.4 million in the year-ago quarter, an increase of $7.3 million. This increase was primarily driven by a $3.6 million increase in state, franchise, and sales tax expenses, a $3.8 million increase in incentive compensation, and a $1.1 million increase in stock compensation and a $0.7 million increase in outside labor. This was partially offset by a $1.1 million decrease in compensation expense and a $0.4 million decrease in travel and entertainment.
Adjusted cash flow from operations was $29 million in 2Q of 2023, compared to $26.8 million in the year-ago quarter, with the increase primarily due to net income of $9.7 million, adjusted for net non-cash items, which increased $5.3 million, and net changes in our operating assets and liabilities, which increased cash by $13.9 million. Adjusted CFFO margin was 30.1% in 2Q of 2023, as compared to 22.8% last year. As we discussed on our last quarter earnings call, timing of annual bonus payments made in the 1Q of 2023 impacted our adjusted cash flow from operations margin. Our second quarter adjusted cash flow from operations margin was 30.1%, which was significantly higher than the 4% we reported in the 1Q of 2023.
On a year-to-date basis, our adjusted CFFO margin for the first half of 2023 was 17%, as compared to 11% for the first half of 2022. As we have discussed in the past, the payment of certain expenses, especially as it comes to royalties and commissions, is not linear, and we impact quarter-to-quarter margins. However, we believe the second half of the year, on average, should be consistent with our year-to-date margin for the first half of the year. Our paid subscriber base declined from 898,000 at the end of the second quarter of 2022 to 750,000 this quarter, a 16.4% decline, driven by a decrease in overall consumer engagement. As compared to the first quarter of 2023, our paid subscriber base was down 27,000, or 3.5%.
During the quarter, active fee-free subscribers decreased by 0.4 million, or 9.5%, to 3.9 million, compared to 4.3 million as of June 30th, 2022. The year-over-year decline in active subscribers is a result of decreased engagement with our subscriber community as consumer engagement continues to be soft. As compared to the first quarter of 2023, active free subscribers declined 0.1 million, or 2.9%. ARPU declined to $490 this quarter from $580 in the second quarter of 2022. This was driven by a 26% decrease in average trailing four-quarter billings, combined with a 13% decrease in average trailing four-quarter paid subscribers. We believe the billings decline is primarily due to the volatile economy that has persisted since the first quarter of 2022.
As compared to first quarter 2023, ARPU decreased $4, or less than 1%. Last week, we declared a $0.01 per share quarterly dividend to shareholders of our Class A common stock in a dividend equivalent to our holders of our Class B units. We continue to view this dividend as a conservative capital return to our shareholders. Finally, before I turn it back to Amber, I want to emphasize that the hard work we have done on the cost and efficiency side of our operations continues to contribute to the bottom line. Improvement in efficiencies, total operating costs, and our cash flow and adjusted cash flow margins are a direct result of the hard choices we have made over the past year. In addition, we are starting to see some improvement in market engagement, conversions, and subscriber interest in our publications.
As we begin to see overall market conditions improve and the self-directed investor return to the market, we believe we are well positioned to take advantage of opportunities to improve the strength of our business. With that, I will turn it back to Amber.
Thank you, Steve. To conclude, I continue to be excited about the opportunity I see every day at MarketWise. Our metrics around consumer engagement and subscriber conversions are beginning to show signs of improvement. Big Ideas and products focused on artificial intelligence and global macro themes have gained traction in recent weeks, and market sentiment is starting to shift in our favor. As I look at our current situation, I'm pleased to see our business model has proven itself once again. When faced with volatility and uncertainty in the markets, we pulled back on our spending and worked to find the next Big Ideas to help self-directed investors succeed. We successfully navigated that challenging environment and emerged on the other side profitable and cash flow positive.
I look forward to working with our teams to execute on the opportunities ahead of us, continually improve our business model, and deliver increasing shareholder returns to our long-term investors. I know we've said this before, but this truly is a great business focused on serving the retail investor in a way which we know is both unique and valuable. Our principles define our mission: deliver great investing ideas to the retail investor, deliver these ideas written in a way that is easy to understand and execute, and treating our subscribers the way we would want to be treated if our roles were reversed. I will now turn it over to the operator for your questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is released to allow your signal to reach our equipment. Again, to ask a phone question, it is star one. To ask a question over the web, please submit your question in the box and hit send. We'll pause just for a moment to allow everyone an opportunity to signal for questions.
We will go ahead and take our first question from Kyle Peterson with Needham. Please go ahead.
Great. Thanks, guys. Good morning, appreciate you taking the question. Wanted to start on, you know, paid subscribers. Seems like, you know, you guys seem a little kind of cautiously optimistic there. You know, seems like there's some little bit better numbers and, and engagement in June and, and July. Just wanted to get your sense, like barring, you know, whether, like, if there's a black swan event or something, in absence of, like, a negative market event like that, or do you guys have some comfort that, you know, we might be at least approaching a bottom on paid subs, or, or is it still a little early to, to tell?
None of us has a crystal ball, but that's I would call us cautiously optimistic. I think you're right. We're looking to see subscriber growth at quarter over quarter. We can't guarantee anything, but that's where our heads are at.
Yeah, Kyle, I'd just say that we're, we're definitely starting to see some improvement in some of the metrics and, you know, some action is being taken on the subscriber side. As Amber said, it's, it, it's early yet, but it feels like we're getting some traction that we didn't have, let's say, six months ago.
Yeah, Kyle, we've also seen churn starting to work in our favor. Our churn rate was down from where it was in the first quarter of the year, you know, it looks like at least in the short term, we're gonna continue to have that churn rate stay low. That, that's one part of the equation. The other part, obviously, is new subscriber acquisition. We did see a slight increase in subscriber acquisition in the second quarter and, you know, we have a couple weeks of, of good results here in July. We just have to see if that continues.
Okay. That's great color. You know, just a follow-up on cash flow. Good to see the step-up in cash flow margins this quarter. Sounds like in the second half, I guess they should be relatively consistent with the first half. I guess just thinking about that, I mean, obviously the 1Q versus the 2Q cash flow margins were quite a bit different. Is thinking of somewhere in between, is that, like, a good way to think about it? Maybe are we closer to the 2Q level, given that 1Q had the bonus payment impact?
Well, I think that we were forecasting something similar for the second half of 2023. It's hard to know quarter to quarter. There are impacts that are a little bit uneven, and also, as we increase the subscriber acquisition, that might impact our results as well. If, Lee, you've got any more to add to that.
Yeah, Kyle. We do tend to be lumpy a bit in that, and the first quarter had our annual incentive payouts, which is kind of a double whammy, but we do pay out some royalties and commissions in Q3, and we're trying to get that leveled out so we're not as choppy. Generally speaking, the first quarter and the third quarter are gonna tend to be on the lower side. The second quarter and the fourth quarter are gonna tend to be on the higher side. I think the best way to really look at it is to look at the half year. Again, we think that the second half of the year is gonna look a lot like the first part of the year, maybe with a slight upside to it.
Okay. That's helpful. Thank you.
Our next question will come from Devin Ryan with JMP Securities. Please go ahead.
Hi, this is actually Michael Falco on for Devin. Good morning. Wanted to start by touching on the content strategy. You launched 50 new publications in the quarter. Amber, I think you mentioned in the prepared remarks, talking about figuring out how to, you know, talk to prospective subscribers again. I know you mentioned AI, but can you provide any additional insight around maybe what specific types of content are working, driving conversions, attracting new members, and resonating with existing subscribers in the current environment? Then perhaps, on the other hand, what content maybe has been less effective?
Great question. It's one of the most important questions in the business. AI in, in all of its magical different forms, is absolutely intriguing our subscribers. We've got products that are using AI to help predict, to help generate stock recommendations. We've got products that are talking about how to invest in AI. We've got products that can give you the best stocks in any sector. Let's talk about the best stocks in AI. If you, the, the AI flavor, we're seeing it throughout MarketWise. A couple other themes that have been interesting for our subscribers is global macro, which sort of, you know, it's hard exactly to define, but the idea of dangers to the US dollar and how to protect yourself from that.
It's a, it's a perennial theme in newsletters, and that's something that is generating subscriber interest as well. Then we're also seeing increased interest in all different kinds of software to help assist you in managing your own portfolio and to help you trade.
Thanks. That's, that's great context. Maybe just one quick follow-up on, on M&A. Any, any context on the types of opportunities you're seeing there and, and what your appetite is for acquisitions at the moment?
We have been and continue to be very active looking for potential M&A opportunities. I can tell you that we've kissed a lot of frogs over the last year. We've found a few princes, but nobody that we're ready to walk down the aisle with. We are open to interesting ideas, but we're extremely disciplined about our approach. We want to make sure that it is additive for shareholders and not that we're doing M&A for the sake of doing M&A.
Sure, that makes sense. Thank you.
Our next question will come from Jason Helfstein with Oppenheimer. Please go ahead.
Hey, thanks. This is Chad on for Jason. I just wanted to hit on, kind of the first question. You talked about churn declining in the quarter, and it does look like your sequential sub-subscriber losses did get better, but Schwab's daily active trades got worse than 2Q versus 1Q. Is that something we should be kind of paying less attention to kind of going forward now? Then I have a second question.
Okay. I'm gonna toss the Schwab question to Lee, who keeps a closer eye on it.
Yeah. Schwab had a little bit of a strange nuance in the first quarter. We had that little mini bank run where we had a couple banks fail, so there was a lot of cash outflows. The Schwab DATS kind of peaked in the first quarter, and then they, they kind of declined in the second quarter back to kind of where they've been trending since the back half of 2022. We had, you know, an increase this quarter. Schwab, although it didn't kind of see. It did not translate in the second quarter. Schwab DATS have come up in July, so they appear to be lagging ours just a little bit.
I think that first quarter increase on their part was an anomaly due to these mini bank runs.
Yeah, that increase in DATS wasn't going to translate into new subscribers for us, we thought. I think that you level it all out and kind of look to fourth quarter to now, it makes a lot more sense.
Okay, great. That makes sense. Then I, I know you don't guide, but, you know, sounds like we're getting incrementally more positive on kind of the, the go-forward outlook. Does that mean that revenue can grow sequentially from here, or, you know, still not sure yet?
Like you said, we don't guide. That's something, bringing on new subscribers is a great thing. It is the beginning of all things. Revenue might lag a bit because it takes a while for folks to work through our funnel and start buying the higher-priced products. As new, high-quality subscribers come on, we absolutely expect to see revenue increase.
Yeah, I think that's it. Go ahead.
I was just gonna say, revenue definitely has a lag versus billings. You know, we, we amortize the, the revenue, or the revenue comes off of our balance sheet over the life of a subscription. We could have several straight quarters of increased billings, but the GAAP revenue is gonna take much longer than that to catch up to it. You know, again, we don't give guidance, but I don't think we're gonna see a rapid escalation of our GAAP revenue. It certainly wouldn't escalate as quickly as our billings may.
Just to finish on that, it's really important to realize that if we start to bring more people to the top of the funnel, as Amber just mentioned, that, you know, the life cycle of our customers is quite long, and that first, that first sale may be additive to some point, but it's really that second and third sale. The longer and deeper the relationship with us is, the more we'll see that revenue build over time.
Yeah. Something really important to keep in mind is that very little of the current period GAAP revenue is actually earned in the period. So if you're looking for revenue that was earned in the period, billings is the, is the metric to look at.
Okay. Makes sense. Thank you.
As another reminder, it is star 1 to ask a question over the phone. You can also ask a question over the web by just typing your question into the Ask a Question box and hit send. We'll go ahead and take our next question from Alex Kramm with UBS. Please go ahead.
Yes. Hey, good morning, everyone. Just another one on the cost side. Not sure if I heard you correctly there, but I think you said you continue to evaluate or take cost action, so maybe you can flesh this out a little bit more. Are you basically... I mean, are you still doing things? If you're doing anything, please, can you let us know what you're doing and maybe dimensionalize a little bit? Given the improvement here, are you a little bit slowing down those maybe other cuts that you had planned?
I think we still have efficiencies to find in our centralized operation, and those will be iterative, rather than slash and, slash and burn. As we get better at being a public company, we will become more efficient at providing those services that we need to provide at, at a lower cost. We can bring some functions in-house that right now we're paying consultants to do for us, which could save us some money. We're always looking to improve efficiencies. One of the things to know on the cost side is, as we increase our direct marketing, we will be increasing our direct marketing spend. The reason why we dialed it back, and the reason why we would dial it up is based on efficiency. We dialed it back because it was inefficient spend.
As we start to see great metrics, we'll be dialing that up.
Yep. No, makes sense. Then maybe just to come back to maybe the second quarter and also what we've seen so far. I mean, you, you gave a lot of detail around some of the metrics that are improving. I think gross and subscribers, up 11% relative to the first quarter was one that stood out to us. But when you just look at maybe markets being really strong in the second quarter, and, and sometimes that, that brings retail investors back to engage, like, what are the things that you would point to for existing- for both existing and new investors that really, really stood out? And, and, and maybe anything you've, you know, from history in terms of like, yeah, maybe it actually takes a little bit after, like, a big quarter that we just had.
I know it's a, it's a, it's a broad question, but, but really, any more detail you hadn't provided so far on both the new and existing side that, that kind of stood out and, can serve as a, as a, as a good preamble of what's to come?
Okay, I'll take a shot at that, and then if anybody has anything smarter to add, they can. One thing to keep in mind about our business is often that retail investors are a little bit slower than institutional investors to catch on to a trend. If you start to see institutional investors move into a sector or move into the market overall, retail investors can take a little bit longer to warm up to that idea. Just in general, you might see a little bit of lag in retail investor activity and retail subscriber activity for us.
Then I, I, I touched on it before, but, if there's a hot trend in the market like AI, and our retail investors are hearing about it in the news, and they're talking to their friends about it, and their friends are doing things with ChatGPT, that sort of echo chamber effect works in our favor if we're speaking to that same trend.
Yeah. The, the other thing I would say, Alex, is, you know, one of the things we, we watch, I watch very carefully is, is our daily orders, especially around the lower price point products. We are starting to see a little bit of an acceleration there. If you think about our sales funnel, that is the very top of our sales funnel. That's, that's kind of the oil that runs through the engine. Again, I don't wanna get kind of over my skis, but we are seeing a positive trend in that. Typically in our sales funnel, what would happen is those subscribers would see the value in, in the content that we provide, and they will continue to buy additional subscriptions.
As they move along their journey, those subscriptions become more expensive, and that's where we would start to see a lift in the billings. It's way too early for us to see that because we're only a few weeks into those orders kind of stepping up just a little bit. We'll be keeping a close eye on it this quarter.
Makes sense. Thanks.
It appears there are no further phone questions at this time. I will now turn it over for the web questions.
Yeah. Thanks so much, Allie. We've got a couple of questions, Amber.
Go ahead.
The first one is on M&A and M&A targeting. The question asks: How do we factor subscriber demographics into acquisition analysis? You know, we tend to have a bit of an older subscription base, so how do you factor that into potential deals?
We absolutely do factor that into potential deals. We are looking for demographics that match our current demographics. We know that those are the kinds of people who buy subscriptions from us and who upgrade and become our long-term, loyal subscribers. When we're looking at an M&A target, if they have demographics that are substantially different, if they're all Gen Z-ers, that would give us, give us real pause. It's not that we don't wanna talk to Gen Z, but we want to talk to the Gen Z cohort who is interested in investment advice, which happens, happens to be sort of a small slice of that. What we're looking for in M&A acquisitions is something that looks and feels familiar, that we can have really high confidence that they're going to become great subscribers for us.
That's great. The question that you can start, but I'm sure it's gonna end up with Lee, is about ARPU. You know, how do you balance new acquisition with ARPU, since new acquisitions will typically come in at a lower price point? Do you have a floor in mind? Do you have a thought process about where you see ARPU going?
I would say we don't manage to ARPU. New subscribers, new high-quality subscribers are a great thing. We bring them on, when we can do that efficiently, when we have confidence that they will pay us back for our costs and then some. If we have the great good fortune to be able to bring on a whole lot of those subscribers at once, that could weigh on ARPU, but we would expect ARPU then to rebound as those subscribers work through our, our funnel, as Lee was describing.
Right. I, I always say ARPU is, is simply math. It's, it's billings, and it's subscribers. Right now, we are kind of at an inflection point where we hope both are gonna start ticking up. It is a trailing four-quarter metric, so I just have to remind you of that. Even if we have, like, a really great quarter, we still have to slog through the prior three quarters, which, quite honestly, haven't been that great for us. There's gonna be, you know, again, we're talking a lot about delayed effects today. I think we're probably bottomed on our ARPU, but I don't expect a rapid escalation.
I think it will stay steady-ish around where it is and maybe tick up $1 or $2, or something like that here as we head into the next quarter, and then we'll just have to see how the rest of the, this quarter's billings kind of play out.
Great. All right, one last one, since we've been talking about AI. Really the question is, you know, how do you assess the impact of AI on our business model, and are there threats to our business that come out of that, all the things we've heard about in AI?
I might end up spinning a little gold out of straw here because we haven't seen it, seen the impact yet. I'm super excited about what AI could do on our operations side. I think it could improve efficiencies in customer service, and they're already using it in our HR team. We're looking at copywriting, we're looking at editorial production, and it doesn't have to revolutionize how everybody does their job. If we can just get 10% better in a few areas of our business, that will have a major impact. Again, forward-looking statements, disclaimer, disclaimer, disclaimer. In terms of threats, what I think about is the spectrum of financial information or even publishing in general.
You've got information, you've got data, you've got information, you've got news, you've got opinion, you've got analysis, you've got insight, you've got recommendations, and you've got a human connection. There are a lot of publishing businesses that live down here, and if I were down here, I would be worried because I think it's a commodity, and in fact, the robots are coming and will be able to produce that very efficiently. As you move up the spectrum, you get closer and closer to human connection, and that's really where we live. That's the value that we bring to our subscribers, that insight, analysis, ideas that a robot won't be able to generate. Robots might be coming for us all eventually, but we will not be the first ones down on the battlefield.
That's great. All right.
Good news.
Good to know.
Good to know.
Feel secure. That's all we have from our site.
Great!
We're all set.
Well, it's just... I really appreciate you guys joining me on this webcast. I know it was, there was some trepidation among the team, so I think you guys did great, and thanks for indulging this experiment, and thanks to the audience for the same. I hope you guys all have a great day, and we'll see you next quarter.
With that, that does conclude today's call. Thank you for your participation. You may now disconnect.