What lessons can we learn from the revenue recognition models that AYX and how might that effect our other investments?
I’m wondering how the accounting utilizing ACS606 will effect those companies we follow that are not fully Saas. Will a smaller portion of the total contract value be reported when a company collects revenue under a Saas model relative to a subscription model? And More specifically: if Revenue is mostly collected by subscription and only partially under the Saas model, does That mean Y/Y Revenue growth could be dramatically less during any downturn?
A little review:
AYX with ASC606, as posted by rtichy-
35-40% of TCV is booked in the quarter for both “new” contracts and for “renewal” contracts. with the remainder of either kind spread over the remaining duration of the contract. So a 3 year deal re-upped with customer X hits two of 24 quarters much harder than the other 22 quarters
Of course that wasn’t the only issue to effect revenue recognition for AYX, from this last call:
‘Our dollar-based net expansion rate is a trailing four-quarter average of the annual contract value, or ACV, which is defined as the subscription revenue that we would contractually expect to recognize over the term of the contract divided by the term of the contract, in years, from a cohort of customers in a quarter as compared to the same quarter in the prior year.’
Does the way AYX recognizes dollar-based net expansion rate and a big increase in contract duration alone lead to a huge growth in revenue but not the same jump in expansion rate; with the same thing happening on the downside (A shortening in duration has a disproportionate effect on revenue growth)?
Or would the change in revenue recognition be as significant, as considered by those still reading here, if the only difference were in the Saas vs Subscription revenue recognition due to ACS606 as stated in the second paragraph Above?
ESTC is reporting tomorrow and 24% of total revenue is Saas and 90+% of total revenue is subscription. MDB is 45% Saas and I’m not sure off hand what % subscription; but, would a slow down in the non-Saas portion of the revenue collected be recognized proportionately with similar effect recently experienced by AYX? Me being a nobody here, I believe it would.
I’ll definitely be looking at how the dollar-net expansion rate of both ESTC and MDB Is recognized tonight (to see if that may also lead to a more severe effect on Revenue recognition this quarter)if there is as I suspect going to be a slow down in the non-Saas portion of the revenue collected.
Please point out where my thinking went astray if you may,
Jason
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