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I heard from some friends that work there that over the last two years, they have been offering very large discounts on 5+ year deals if they were paid for upfr
by amathyst 6y ago
I heard from some friends that work there that over the last two years, they have been offering very large discounts on 5+ year deals if they were paid for upfront. One can assume that this is to shift revenue into the pre-IPO financial years so they can show this level of growth in their S-1
- paulgb 6y agoMinor nit: this would increase cash flow but not revenue, which has to be recognized when it is earned rather than when it is paid.
- amathyst 6y agoThanks. For my understanding, what’s the standard definition of “when it is earned”? If it’s a 5 year contract must all revenue associated with that contract be spread across all 5 years?
- carlineng 6y agoThere are rules around revenue recognition [1]. These rules provide guiding principles, and there's some human judgment involved in ironing out the details. Its almost certain that the revenue would be spread over the life of the contract, but it's possible that the contract has some growth baked in, so the latter years may be more heavily weighted than the early years. You can see how much prepaid money is "waiting" to be recognized by looking at Deferred Revenue on the balance sheet. $263 million at the end of 2019. [1] https://www.investopedia.com/terms/r/revenuerecognition.asp https://www.investopedia.com/terms/r/revenuerecognition.asp
- htrp 6y agopaulgb.... just want to point out that accounting for long-term contracts is a standard way to manipulate earnings (and nearly everyone has been dinged for it at one point or another). accrual accounting is the devil's work.