Universal Display (OLED)- Deferred (Revenue) Gratification

Deciphering the moving parts of the company’s revenue recognition accounts

OLED’s 1Q24 EPS of $1.19 beat by 11 cents. Its revenue jumped by 27% and beat the forecast by $14.8 million. The stock rose quickly after these results and management raised the low end of revenue guidance. However, OLED’s business model makes it difficult to analyze revenue trends. The company’s revenue recognition process involves many moving parts and depends heavily on estimates. In addition, the company relies on a small number of contracts with large customers, each with unique contract terms. Changes in contract terms with a single customer can therefore significantly impact the timing of recognizing revenue and the associated balance sheet accounts.

The complicated nature of OLED’s revenue recognition resulting from its business model makes it an excellent case study for analyzing deferred revenue trends. We have seen short-focused reports on OLED in the past that have, in our opinion, unfairly accused the company of aggressive accounting over declines in deferred revenue balances that were actually a result of changes in its contract terms.  However, this time around we believe unusual movements in OLED’s revenue recognition accounts in 1Q24 may indicate that the benefit of a contract change in 2023 has extended past what would be expected. As a result, growth in 2024 may be lower than some are expecting.

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