ZW Data Action Technologies Inc.CNET
ZW Data Action Technologies Inc. Revenue Disclosure
| q) | Revenue recognition |
On
January 1, 2018,
the Company adopted ASC Topic 606,
“Revenue from Contracts with Customers”, applying the modified retrospective method. The adoption didn’t result in a material adjustment to the accumulated deficit as of January 1, 2018.
In accordance with ASC Topic
606,
revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. In determining when and how much revenue is recognized from contracts with customers, the Company performs the following five
-step analysis: (1
) identify the contract(s) with a customer; (2
) identify the performance obligations in the contract; (3
) determine the transaction price; (4
) allocate the transaction price to the performance obligations in the contract; (5
) recognize revenue when (or as) the entity satisfies a performance obligation.Multiple performance obligations included in the Company’s contracts with customers for the distribution of the right to use search engine marketing service are neither capable of being distinct, that is, can benefit the customer on its own or together with other readily available resources, nor is distinct within the context of the contract, that is, the promise to transfer the service separately identifiable from other promises in the contract.
The Company’s contract with customers do
not
include significant financing component and any variable consideration.Advance from customers related to unsatisfied performance obligations are generally refundable. Refund of advance from cu
stomers was insignifi
cant for both the years ended December 31, 2018
and 2017.
The Company does
not
believe that significant management judgements are involved in revenue recognition, but the amount and timing of the Company’s revenues could be different for any period if management made different judgments or utilized different estimates. Generally, the Company recognizes revenue under ASC Topic 606
for each type of its performance obligation either over time (generally, the transfer of a service) or at a point in time (generally, the transfer of a good (information)) as follows:Online advertising placement service/TV advertising service
For online advertising placement service contracts and TV advertising service contracts that are established based on a fixed price scheme with the related advertisement placements obligation, the Company provides advertisement placements in specified locations on the Company’s advertising portals for agreed periods and/or place the advertisements onto the Company’s purchased advertisement time during specific TV programs for agreed periods. Revenue is recognized ratably over the period the advertising is provided and, as such, the Company considers the services to have been delivered (“over time”).
Sales of effective sales lead information
For advertising contracts related to purchase of effective sales lead information, revenue is recognized based on a fixed price per sales lead and the quantity of effective sales lead, when information is delivered and accepted by customers (“point in time”).
Search engine marketing and data service
Revenue from search engine marketing and data services is recognized on a monthly basis based on the direct cost consumed through search engines for providing such services with a premium (“over time”). The Company recognizes the revenue on a gross basis, because the Company determines that it is a principal in the transaction who control the goods or services before they are transferred to the customers.
All of the Company’s revenues are generated from the PRC. The following tables present the Company’s revenues disaggregated by products and services and timing of revenue recognition:
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| US$(’000) | US$(’000) | |||||||
| Internet advertising and data service | ||||||||
| --distribution of the right to use search engine marketing service | 47,423 | 37,355 | ||||||
| --online advertising placements | 9,094 | 7,534 | ||||||
| --sales of effective sales lead information | 494 | 1,345 | ||||||
| TV advertising service | 121 | 342 | ||||||
| Others | 14 | 57 | ||||||
| Total revenues | 57,146 | 46,633 | ||||||
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| US$(’000) | US$(’000) | |||||||
| Revenue recognized over time | 56,652 | 45,288 | ||||||
| Revenue recognized at a point in time | 494 | 1,345 | ||||||
| Total revenues | 57,146 | 46,633 | ||||||
Contract costs
For the year ended
December 31, 2018,
the Company did not
have any significant incremental costs of obtaining contracts with customers incurred and/or costs incurred in fulfilling contracts with customers within the scope of ASC Topic 606,
that shall be recognized as an asset and amortized to expenses in a pattern that matches the timing of the revenue recognition of the related contract.Contract balances
The Company evaluates overall economic conditions, its working capital status and customer specific credit and negotiates the payment terms of a contract with individual customer on a case by case basis in its normal course of business.
Advances received from customers related to unsatisfied performance obligations are recoded as contract liabilities (advance from customers), which will be realized as revenues upon the satisfaction of performance obligations through the transfer of related promised goods and services to customers.
For contracts without a full or any advance payments required, the Company bills the customers any unpaid contract price immediately upon satisfaction of the related performance obligations when revenue is recognized, and the Company normally receives payment from customers within
90
days after a bill is issued.The Company does
not
have any contract assets (unbilled receivables) since revenue is recognized when control of the promised goods or services is transferred and the payment from customers is not
contingent on a future event.The Company’s contract liabilities consist of advance from customers related to unsatisfied performance obligations in relation to internet adverting service, distribution of the right to use search engine marketing service, as well as TV advertising service. All contract liabilities are expected to be recognized as revenue within
one
year. The table below summarized the movement of the Company’s contract liabilities for the year ended December 31, 2018:
| Advance from customers | ||||
| US$(’000) | ||||
| Balance as of January 1, 2018 | 3,559 | |||
| Exchange translation adjustment | (171 | ) | ||
| Revenue recognized from beginning contract liability balance | (3,338 | ) | ||
| Advances received from customers related to unsatisfied performance obligations | 1,011 | |||
| Balance as of December 31, 2018 | 1,061 | |||
For the year ended
December 31, 2018,
there is no
revenue recognized from performance obligations that were satisfied in prior periods.Transaction price allocated to remaining performance obligation
The Company has elected to apply the practical expedient in paragraph ASC Topic
606
-10
-50
-14
and did not
disclose the information related to transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied as of December 31, 2018,
because all performance obligations of the Company’s contracts with customers have an original expected duration of one
year or less.About Revenue Disclosures
Revenue disclosures under ASC 606 explain how a company identifies performance obligations, allocates transaction prices, and determines when revenue is recognized. This section is essential for understanding whether reported revenue reflects genuine economic activity or aggressive accounting choices. Analysts examine the mix of point-in-time versus over-time recognition, which directly affects revenue timing and comparability.
Key signals: rising contract liabilities (deferred revenue) suggest strong future revenue visibility, while declining contract assets may indicate slowing project milestones. Watch for variable consideration estimates — rebates, returns, and performance bonuses that require management judgment. Significant changes in disaggregated revenue by geography or product line can reveal shifting business mix before it appears in headline numbers. Compare revenue growth against contract liability growth to assess sustainability, and scrutinize any changes in the timing of recognition that coincide with earnings pressure.