Go Daddy 2015 Annual Report Download - page 77

Table of Contents
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP, and in doing so, we have to make estimates, assumptions and judgments
affecting the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. We base our
estimates, assumptions and judgments on historical experience and on various other factors we believe to be reasonable under the circumstances, and we evaluate
these estimates, assumptions and judgments on an ongoing basis. Different assumptions and judgments would change the estimates used in the preparation of our
consolidated financial statements, which, in turn, could change our results from those reported. We refer to estimates, assumptions and judgments of this type as
our critical accounting policies and estimates, which we discuss further below. We review our critical accounting policies and estimates with the audit committee
of our board of directors on an annual basis.
See Note 2 to our consolidated financial statements for a summary of our significant accounting policies.
Revenue Recognition
We recognize revenue over the period during which products or services are delivered to the customer. Customers are billed for products, generally in
advance, based on their selected contract term duration. For all customers, regardless of the method we use to bill them, cash received in advance of the provision
of products is recorded as deferred revenue.
We may sell multiple products to customers at the same time. For example, we may design a customer website and separately offer other products such as
hosting and an online shopping cart, or a customer may combine a domain registration with other products such as private registration or email. Revenue
arrangements with multiple deliverables are divided into separate units of accounting if each deliverable has stand-alone value to the customer. The majority of our
revenue arrangements consist of multiple-element arrangements, with revenue for each unit of accounting recognized as the product or service is delivered to the
customer.
Consideration is allocated to each deliverable at the inception of an arrangement based on relative selling prices. We determine the relative selling price for
each deliverable based on our vendor-specific objective evidence of selling price (VSOE), if available, or our best estimate of selling price (BESP), if VSOE is not
available. We establish VSOE for certain of our products when a consistent number of stand-alone sales of these products have been priced within a reasonably
narrow range. We are unable to establish VSOE when we lack pricing consistency, primarily related to our marketing strategies and variability in pricing due to
promotional activity.
Our process for determining BESP requires judgment and considers multiple factors that may vary over time depending upon the unique facts and
circumstances related to each deliverable. For products where VSOE is not available, we determined BESP by considering our overall pricing objectives and
market conditions. Significant factors taken into consideration include historical and expected discounting practices, the size, volume and term length of
transactions, customer demographics, the geographic areas in which our products are sold and our overall go-to-market strategy.
We have determined third-party evidence of selling price (TPE) is not a practical alternative due primarily to the significant variability among available third-
party pricing information for similar products and differences in the features of our product offerings compared to other parties.
We sell our products directly to customers and also through a network of resellers. In certain cases, we act as a reseller of products provided by others. The
determination of gross or net revenue recognition is reviewed on a product by product basis and is dependent on whether we act as principal or agent in the
transaction.
We maintain a reserve to provide for refunds granted to customers. Our reserve is an estimate based on historical refund experience. Refunds reduce deferred
revenue at the time they are granted and result in a reduced amount of revenue recognized over the contract term of the applicable product compared to the amount
originally expected. Our annual refund rate has ranged from 6.9% to 7.2% of total bookings from 2013 to 2015 .
See Notes 2 and 7 to our consolidated financial statements for additional information regarding revenue recognition and deferred revenue.
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