By Michael Rapoport
Regulators are pushing Amazon.com Inc. and other companies to disclose more about where they get their revenue. Some companies are pushing back.
The Securities and Exchange Commission has pressed Amazon to tell investors how much of its revenue comes from its Amazon Prime customers, according to letters between the SEC and the company. Amazon declined, contending the information isn’t meaningful. Companies including Ford Motor Co. and truck maker Paccar Inc. also have rebuffed SEC requests to break out parts of their revenue. That has left many investors without the sort of deeper, granular information about revenue that they were supposed to get from companies under an accounting rule that took effect this year, such as which products, sales channels or geographic locations are driving a company’s top line.
The new accounting rule focuses primarily on how and when companies book revenue.
It also requires them to disclose a breakdown of their revenue in ways that would help show investors how economic factors affect the nature, amount, timing and uncertainty of revenue. Many companies, however, haven’t provided any more detail about their revenue than they did before the new rule, Todd Castagno, a Morgan Stanley accounting analyst, said. “There will have to be more of an outcry for there to be a change.”
The clash may not be over. While the SEC hasn’t forced the issue, it has indicated it plans to continue focusing in 2019 on how companies disclose the makeup of their revenue. If companies continue to resist providing the information, the SEC may insist on it.
Investors want that kind of information: A survey earlier this year by the CFA Institute, a group of chartered financial analysts that advocates for investor-friendly measures, indicated 73.6% of respondents thought disclosures about a company’s segment revenues weren’t detailed enough.
The rule doesn’t require companies to break down their revenue in any specific way.
But if they discuss particular sources of revenue in earnings announcements or conference calls, or if they provide their top decision-makers with particular details about revenue, such as how individual products are selling, then they are supposed to consider breaking out the revenue on that basis for investors too.
In Amazon’s case, the SEC noted in an August letter that the company said publicly it had topped 100 million paid Prime members globally and shipped more than five billion items with Prime world-wide in 2017. It asked Amazon to disclose its percentage of sales attributable to Prime members.
Amazon declined, telling the SEC it didn’t believe sales to Prime customers was useful information and that Prime membership is “only one element” of its business. An Amazon spokeswoman declined to comment further.
Prime is “certainly one of the key growth drivers for analyzing Amazon’s retail business,” said Colin Sebastian, an analyst covering Amazon for Robert W. Baird & Co. But based on the information Amazon has already provided, he said, “I don’t think there’s any big mystery in terms of how the Prime membership program is performing.”
The SEC asked Paccar in June whether it had considered breaking out its revenue for fleet customers, which are those who buy significant numbers of trucks, and according to light-, medium- and heavy-duty trucks, since it had discussed those matters on a conference call and in its filings. The company said it didn’t want to do that because it doesn’t manage its business on that basis. Paccar said its spokesman wasn’t available to comment.
Ford, which adopted the new revenue rule early, was questioned by the SEC in August 2017 about why it reported vehicle revenue together with parts and accessories revenue. Ford said the two categories were similar enough for purposes of the disclosure. The company declined to comment further.
The SEC previously pressed companies to disclose the performance of their business segments. Last year, the commission asked Google parent Alphabet Inc. to disclose its YouTube revenue, but Alphabet said it didn’t feel the disclosure was necessary.
Alphabet didn’t respond to a request for comment.
After it raised the latest revenue-disclosure issues with the companies, the SEC later told them it had finished reviewing the matter, signaling further action was unlikely for now. The SEC has said it wouldn’t be overly harsh on companies initially over their adoption of the new rule.
Later on, though, it could be a different story. “They’re like, ‘We’re going to be understanding in the first year, but after a reasonable transition period you can expect closer scrutiny,’ ” said Brian Lane, a former SEC corporation-finance director who is now a partner at law firm Gibson Dunn & Crutcher.
My name is Larry Treas and I am CEO and Head of New Thinking at Dagger. I have 35 years of witnessing the madness that blows through companies around the world, and it’s a foul breeze. I created the Dagger Guild to forge peer discussions, mentoring sessions, and specific information pipeline deliverables to address, solve and alleviate the standard issue nothingness you go through daily. Dagger has no allegiance, no affiliation, and no ties to carriers, vendors, advertisers or telecom marketers of any kind. As a result, our advice is both untethered and unbiased.
You can see from my CV/resume my track record and years of experience. The Dagger Guild is my dream built upon the belief that together, we will create the next generation of heroes.