Go Daddy 2015 Annual Report Download - page 161

Table of Contents
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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.