Initial views on how investors will analyze the financial statements of software and software-as-a-service (SaaS) companies under the ASC 606 revenue recognition standard.
While it once seemed like a long way off, the 2018 effective date of the new revenue recognition standard (Topic 606) is fast approaching, and some software and SaaS companies are early adopting ASC 606. The new standard provides investors with incremental disclosure such as revenue backlog, and additional transparency is generally welcome. Investors also believe, however, that it is incumbent upon the companies to communicate which metrics they feel are most relevant in evaluating their business.
Investors think that even though ASC 606 changes could impact the short-term optics on financial performance, leadership teams should exercise caution before changing how they manage and operate their business. Some investors even strongly believe that overall, ASC 606 does not change the fundamentals nor should it change how companies manage and operate their business for the long term.