Ditto on the great post. Snapshot is useful, but it can also be useful to distinguish between current RPO and non-current RPO. Specifically, it can be used as another vector to help estimate revenue in the upcoming four quarters. Current RPO is expected to be recognized within 12 months. Beyond 12 months can get a little more tricky because long-term contracts can be 2 years or 3 years (or maybe longer in some cases). Sometimes the company will state wha their typical contract duration is. For example, the following is from page 102 of the latest CRWD 10-K:
The subscription fees are typically payable within 30 to 60 days after the execution of the arrangement, and thereafter upon renewal or subsequent installment. The Company initially records the subscription fees as deferred revenue and recognized revenue on a straight-line basis over the term of the agreement.
The typical subscription term is one to three years. Most of the Company’s contracts are non-cancelable over the contractual term. Customers typically have the right to terminate their contracts for cause if the Company fails to perform in accordance with the contractual terms.
But I think one of the important points is that with SaaS companies the actual amount of revenue that gets recognized in any given quarter is sort of arbitrary as determined by accounting rules that must be applied to publicly traded companies in the United States. Much of the dollars collected today will not be recognized as revenue until later. This is visible when comparing the CFFO against the revenue and it’s another reason why EV/S ratios for SaaS companies are (and should be) higher than for companies that sell goods. When a company that sells goods makes a sale they get the revenue recognized all at once while a SaaS company can only recognize some of it. There’s “hidden” value if one is looking at a ratio of revenue and not considering deferred revenue and off-balance sheet remaining contract value. It becomes less hidden when an adjustment is made.
But SaaS companies have differing amounts of RPO compared to revenue and I think that it pays to pay attention to the details here.
GR