Business Case Studies & Business Publications

Plug Power: A Case of Negative Revenue

Koch, Adam

Case

Plug Power: A Case of Negative Revenue

Koch, Adam

C-2460 | Published May 5, 2023 | 9 pages Case

Collection: Darden School of Business

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Learning Objectives

This case examines the accounting implications of a customer incentive deal between Plug Power (Plug; an industry-leading manufacturer of hydrogen fuel cells) and Amazon.com, Inc. (Amazon; Plug’s major customer). Alexis Reed is an analyst struggling to understand the implications of the negative annual revenue reported by Plug for fiscal year 2020. This extremely rare occurrence was caused by the interaction between the accounting rules for reporting payments to customers and those for reporting share-based payments. Plug incentivized Amazon to purchase fuel cells by offering stock warrants for every $50 million purchased by Amazon, up to a total of $600 million in purchases. Payments to customers are typically a reduction to revenue, and share-based payments with performance criteria must be measured at fair-market value when it becomes likely that the performance criteria will be met. An unexpected run-up in Plug’s stock price caused the fair-market value of the stock warrants given as customer incentives to exceed Plug’s expectations. Ultimately, the value of Plug stock awarded to Amazon drastically exceeded the invoice price of Amazon’s purchases. The setting provides an opportunity to discuss Plug’s motivations in offering these lucrative sales incentives, as well as to explore the definition of revenue, the accounting rules and implications for payments to customers and share-based payments, and the role of non–generally accepted accounting principles (non-GAAP) measures in executive compensation and earnings calls. This extremely rare case of negative revenue serves as a dramatic and intriguing starting point for class discussions. This case is taught at McIntire as the capstone case in an introductory master’s-level Financial Accounting course and within the revenue recognition module of an advanced Financial Statement Analysis course for undergraduates.

This case can be used to delve into a wide range of topics depending on the students’ familiarity with accounting and the case’s placement within the course. These include the following: accounting for payments to customers, accounting for equity-based payments, the role of non-GAAP measures in earnings calls, the role of non-GAAP measures in executive compensation, and economic motivations to incentivize customers and the impact of the competitive landscape.