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CFA Level I · CFA Level I Exam · Business Models

An analyst reviews a subscription software firm that has shifted from perpetual licences to annual subscriptions. In the first year after the change, reported revenue falls while customer count rises. The analyst's most appropriate conclusion is that the:

The most appropriate conclusion is that the revenue pattern reflects recognition timing rather than weaker demand. Subscriptions spread revenue over the contract term, whereas perpetual licences are recognized largely up front, so revenue can dip while customers grow. Rising customer numbers contradict customer loss or lost pricing power.

  1. Afirm is losing customers to competitors
  2. Bfirm's pricing power has been permanently lost
  3. Crevenue pattern reflects timing of recognition rather than weaker demandCorrect

Explanation

Perpetual licences are largely recognized up front, whereas subscription fees are recognized over the contract term. A rising customer count with falling near-term revenue is consistent with this timing shift, with recurring revenue building later. Customer loss is contradicted by the rising count, and permanent pricing weakness is not indicated.

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