The fact is that there are two types of unearned revenue. An unearned revenue is revenue that we earn by taking a risk, by putting in our own time and effort to create a new product, or by creating an online store. We don’t earn unearned revenue by taking a risk or by putting in our own effort, but we do create revenue in the form of unearned revenue.
The problem is that these unearned revenue streams can become too large to be passed on to consumers without losing their value. A company that makes a new product will typically earn a certain amount of new unearned revenue. The revenue from this new unearned revenue is not reinvested back into the company, it just sits there as idle cash. Companies that are growing will be able to spend more of this unearned revenue on growth and thus make a bigger profit.
This unearned revenue can be passed on to consumers in the form of higher prices and lower profits. The more companies are making these new products, the more they can pass on these unearned revenue streams to consumers, who in turn will spend less of it on their products. This is why it’s important for companies to keep a healthy balance between reinvesting unearned revenue and selling it to consumers.
If you take this idea one step further, you would think that unearned revenue would eventually be spent on increasing profits and thus increasing their market cap. But that’s not the case. Unearned revenue is almost always spent on other activities, such as growth, new products, and marketing.
In the case of Unilever, the company has spent hundreds of millions of dollars on growth and product development. They’ve spent money on buying up companies and creating new ones, such as Dove and Sephora. They’ve also invested in new marketing, such as AdWeek, and some on their advertising.
Of course, this is a very, very inefficient way to spend money. Even if your product or service is perfectly good and you have no problem spending money, you can still lose money on marketing and advertising. But if you are not spending money on marketing and advertising, you can also lose money on Unilever’s unearned revenue.
We’ve all probably heard about the AdWeek article or the Huffington Post article about Unilever. They are both great pieces, but it is important to note that the article authors didn’t look at the Unilever unearned revenue. Their only way to verify the unearned revenue was by doing a research study on the companies they studied. In general, what the article authors said is correct. However, there can be situations where the unearned revenue does not decline.
The only way to know if it is decreasing is to get your team to do a research study on the companies they study. This is the best way to verify the unearned revenue.
This can happen in the case of a company using unearned revenue. You have a company that has a history of growing revenues and profits but then something happens to reduce the amount of unearned revenue for the company. Example: Apple reduces the number of iPhones that can be bought. This reduces the amount of unearned revenue Apple has. The unearned revenue is no longer used to grow the company, but it has to be paid for with cash.
As you may have heard, Apple has been experiencing declining earnings for a while now. The main reason for this is that the unearned revenue has been reduced and thus the company has had to pay for it with cash. The question is, how much of the unearned revenue is being used to pay for the company’s expenses? If the unearned revenue has been reduced to zero, then it makes sense to ask whether this is a good use of the unearned revenue.
