A Look at Broadcom’s (AVGO) Vendor Allowances

Once-in-a-generation events may make for difficult comparisons

Broadcom (AVGO) is down over 5% today despite reporting non-GAAP EPS that was 10 cps ahead of the consensus estimate and providing guidance that was largely in line with the Street. We take such a reaction as an indication of investors coming to expect significantly better than expected performance from companies that are even remotely associated with AI. This makes our observations regarding the company’s vendor allowances that we recently shared with institutional clients more relevant. We will take a closer at look AVGO’s vendor allowance accounting has impacted the company’s results over the last few years and how a reversal of some unusually beneficial trends could prove to be an unexpected headwind.

Note that sales allowances are not our only observation regarding AVGO’s earnings quality. However, this is an excellent opportunity to show what to look for when analyzing the impact of vendor allowances on a company’s results.