Bookings
Sector Deep DivesThe value of contracts signed in a period, recognised on signature rather than as the service is delivered.
Also written: total contract value, TCV, annual contract value, ACV
Bookings measure sales activity, not accounting revenue. A contract signed on the last day of the period is a full booking and almost no revenue, which is exactly why the two figures can move in opposite directions in the same quarter.
The definition varies more than any other software metric. Some companies book total contract value, the whole multi year commitment. Others book annual contract value, the first year only. A company that switches from one to the other, or that starts signing longer contracts, can report a step change in bookings growth with no change in demand.
It is unaudited and undefined by IFRS, so it is an alternative performance measure. Under the ESMA guidelines a European issuer must define it, reconcile it to the IFRS figure and give it no greater prominence, which is why the definition is usually available if you look for it.
Read it as the leading indicator it is, then check it against remaining performance obligations, which measures roughly the same commitment on an audited basis. A gap between the two that is not explained by contract length is worth a question.
Worked example
A customer signs a three year contract on 1 October at €120,000 a year. Bookings on a total contract value basis are €360,000 and on an annual contract value basis €120,000.
Revenue for the year is €30,000, being the three months delivered. Bookings growth and revenue growth for that year are not measuring the same thing, and neither is wrong.