Excessive stock-based compensation dilutes tech returns
The guest argued that high stock-based compensation (SBC) in Silicon Valley tech companies severely dilutes public shareholders and masks true valuation levels.
The argument
The speaker pointed out that many internet and tech stocks remain expensive on a free cash flow basis because their high equity compensation packages dilute shareholders, a risk he believes public market investors are starting to question more aggressively.
The thesis, stress-tested
✓ What validates it
- ✓SBC as a percentage of revenue rising in upcoming quarterly reports
- ✓Shareholder activist campaigns targeting equity compensation plans
▸ Risks discussed
- ▸Strong revenue growth outpacing the rate of share dilution
- ▸Aggressive corporate share buyback programs offsetting the dilution
Hear it yourself
"And as the stock goes down, they're like, oh, now now we gotta lower my numbers and take the numbers out. And a lot of big public hedge funds or public market investors, you don't wanna own stocks when numbers need to come down."
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