Byju's: Will it survive?
After a year and a half, Byju's finally released its FY21 results, and trust me the drama post the results was worth the wait. Prior to the results, the company had made some bold estimates, or I might say guesses ? for their revenue to be around Rs. 4400 crores, but their actual revenue remained stagnant at Rs 2,280 crore.
The stagnant revenue of the biggest edtech company amidst the pandemic when the ed-techs had their dream run because all of the education went online was disappointing for everyone.
What's making headlines aren't its revenues, but its ballooning losses. The company’s annual losses rose by 15X? to Rs 4,588 crore in March 2021, compared with Rs 231 crore in March 2020. Basically, for every rupee earned in revenue, it lost two rupees.
Okay, what happened with Byju’s ? Did Shahrukhan raise his fees? Or did advertising on cricket players' jerseys become expensive?
To recognize or not?
Well, to understand what really happened we need to deep dive into its numbers. According to a report by Morning context, the company made money through three sources:
Course fees: Rs 320 crore - Revenue from streaming live sessions
Streaming services: Rs 108 crore - Revenue from streaming pre-recorded courses
Sale of SD cards: Rs 1,848 crore- Revenue from the sale of its tablets and SD cards.
The thing is Byju’s makes more than 80% of its revenue from the sale of tablets and SD cards, which have pre-recorded lessons and test series in them. Just like any other product company, Byju’s recognizes the revenue from the sale of these tablets at the time of the sale.
But you see, the content on these tablets is consumed over a period of months or years, and therefore recognizing the revenue at the time of sale is not a commonly accepted accounting practice.
Because what if the customer cancels the subscription of the course? Or if any customer has made a down payment and refuses to make any further payments for courses?
Flagging all these concerns, Deloitte, auditor of the ed-tech unicorn, decided to put a stop to the practice and changed its revenue recognition policy.
Deloitte stated: “Revenues from transfer of products to certain customers made under deferred payment terms and totalling to Rs 1,156.27 crore (based on consideration that the Parent is entitled for such transfers) has not been recognised because on the point of these transfers the Parent did not meet the criteria that it was probable it will collect the consideration to which it is entitled.”
The change in the policy deferred Byju’s from recognizing 40% of its topline in FY21.
Covering up the expenses
Byju’s did not just overstate its revenue but also understated its expenses to make its bottom line look pretty.
As per a report by Morning context, Byju’s was capitalizing its salary and wage expenses by classifying them as intangible assets under the balance sheet.
Now, you may ask can companies do this?
Yes, some companies can capitalize these expenses if they are spending money on acquiring IP rights or building any product from which the gains last longer than one financial year.
Byju’s gave the same excuse for all these years. As of In FY 2020, Byju’s total salary expenses were approximately Rs 900 crore and out of it, the company transferred Rs 526 crore to intangible assets on the balance sheet
The practice caught the eye of the auditors and it seems they have corrected the practice as in FY21, only Rs. 326 crores out of Rs. 1800 crores of expenses in wages and salaries were capatilised by the company.
Deloitte, the auditor of the company also seems to be sick of the company’s flawed accounting processes. It raised its concerns about the company in the softest possible manner.
It charged Byju’s Rs. 5.8 crores as opposed to Rs. 1.75 crores in FY21, and stated the reason as “the additional effort incurred in the audit consequent to material weaknesses observed in internal controls”.
With ballooning losses and stagnant revenues, things for Byju’s seem pretty bleak. What do you think, with its aggressive spending on marketing and hardcore selling practice, it will be able to turn things around?
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