SBC

Dramatic_Agency_8721

SBC is in net income already, right?

Glittering_Water3645

Forward PE is above 40 incl SBC. You have to adjust for stock based compansation for these SaaS companies

Personal_Repair_3579

Ran BB through a benchmarking tool out of curiosity. Mixed picture honestly. The bull case has legs: 73.8% gross margin (71st percentile vs 176 software peers), and OCF is up 500%+ YoY with FCF finally turning positive. Balance sheet is cleaner than people think - debt coverage ranks 82nd percentile. But revenue is down 29.5% YoY, bottom 8th percentile. 3Y CAGR is -9.4%. Rule of 40 is -28. Moat score is 42/100 -"developing," not strong. And SBC is 155% of operating cash flow, so the "cashflow machine" framing needs some asterisks. QNX moat narrative isn't wrong - it's just that the financials are still catching up to it. Optionality bet, not a fundamentals play. Size accordingly.

JustBrowsinAndVibin

They definitely are. *excluding SBC

notreallydeep

*excluding SBC

tdewault95

Thanks for pointing this out. This is a setup I’ve only seen once before and crushed it. Thank you. Only thing I’m not a huge fan of is how many shares are being added. I understand SBC is still a major factor is SaaS, but it taints my viewpoint.

notreallydeep

>Anthropic has stated that they will be profitable eo Q2, rumors are that they already are. On operating income excluding SBC. In other words: they will not be profitable.

Almost_a_Noob

SBC is decreasing each quarter and isn’t even that high anymore especially compared to other software companies

Kaiser-Rotbart

Yeah I think your position is a reasonable one. Just not one that I share. I think SBC is one of the reasons tech has had so much success.

jrodshoots

lol he couldn’t cut operating costs much more at Reddit. But yeah SBC would be the first thing he’d chop

Internal-Science2137

the gross margins are real but SBC is quietly diluting shareholders. check whether diluted share count is actually shrinking or just flat from buybacks

Flame1808mk

the SBC thing is real smh. printing money and still scooping big comp packages on top of it

jrodshoots

I would rather pay them in the same amount of cash and they can choose to buy shares on the open market if they believe the company will do well. I can't stand insider SBC and seeing them selling for anything but taxes. But it's fine to disagree :)

Kaiser-Rotbart

I completely disagree with that philosophically. They’re still growing rapidly. You want your employees to be incentivized to help the company do well. Tech figured out a long time ago you can get more out of people with equity involved. They would get shit talent without SBC.

jrodshoots

Oh I'm sure it is. I just don't agree with SBC if the company is profitable. As a shareholder I would rather pay them in cash to not dilute my own future equity now Reddit is raking it in.

Kaiser-Rotbart

Some dude on the redditstock sub just did a pretty good analysis showing Reddit is squarely in the middle of its peer set on SBC. And it’s declining. This narrative keeps getting cited but I don’t think it’s accurate.

ECHuSTLe

My thesis has changed and now I’m trapped. Google search change, countries banning social media under 16, meta rival app, UK fines, insider selling bcuz excessive SBC, regulatory scrutiny, no new LLM deals since 2024. Want me to keep going? There’s no catalyst for this junk.

rummuio

Turbo tax looks under pressure, this is the real strategic fear. Management said TurboTax online paying units only +2%, but total TurboTax Online units is down \~2% and share of e-files expected to decline \~1 point. Also there is pressure in more price-sensitive customers That suggests they are making more money from higher ARPU, not necessarily from stronger unit growth. It makes you ask if TurboTax is growing because the moat is stronger… or because Intuit is charging more to a shrinking/maturing user base? Add on Turbo Tax missed expectations in its most important quarter. Whilst QuickBooks was strong, the management said higher effective prices, mix-shift, ARPU improvement......makes you wonder how much is real customer expansion vs pricing power? Random one that jumped out to me, stock based comp is huge at 1.55b. Its normal for a software company to give SBC....but made me ask if buybacks really creating shareholder value, or offsetting dilution, because share volumes have been increasing over the years.

mathaiser

I'm sorry but this is complete bullshit. Here's why: 1. ⁠Start with where the numbers actually came from. Anthropic did not publish a financial statement. Every outlet is reporting figures that were, in the wording of the coverage, "shared during an ongoing funding round" and "told to investors." That is the single most important fact in the story and the one the headlines bury. You are not looking at a company's reported results. 2. ⁠The quarter has not happened. Today is May 21, 2026. The "first profitable quarter" is the June quarter — Q2 2026 — which is not over. The $10.9B revenue figure and the $559M operating profit are forecasts. The verbs in the coverage give it away: "expects to," "is projected to," "is on track to," "is about to." A headline announcing a profitable quarter that has not closed is reporting an intention, not an outcome. You would never let a company you were underwriting book a result you hadn't seen settle; this is the same thing dressed as news. 3. ⁠The profit metric is explicitly non-standard, and the non-standardness is favorable by construction. The reported operating profit "includes model training costs but excludes stock-based compensation." For a company like Anthropic, stock-based compensation is one of the largest real economic costs of running the business, and excluding it from "operating profit" is not a conservative or even neutral choice. Whoever defined that metric chose a denominator of costs that produces a positive number. $559M of "profit" on $10.9B of revenue is a ~5% margin; if SBC is anywhere near the scale typical of a frontier lab in an active funding round, that thin margin plausibly inverts to a loss under GAAP. A metric that flips sign depending on which real expense you include is a marketing metric. 4. ⁠The "revenue" itself is doing unspecified work. The coverage swings between a $10.9B quarterly figure, a $43-44B annualized run rate, and a separate $30B "annualized revenue" claim from a different commentator. These are not the same thing. They are conflating recognized quarterly revenue with run-rate. There is also no disclosure of gross-versus-net treatment. A large share of Anthropic's revenue flows through cloud-provider marketplaces (AWS, GCP). Whether a dollar of customer spend that passes through a reseller is booked gross or net materially changes the headline number, and a leaked deck will not tell you which convention is in use. Without that, "$10.9B" is not a defined quantity. 5. ⁠The timing is the tell. These figures surfaced "amidst an ongoing funding round expected to value the startup above OpenAI." The function of leaking flattering forward projections during a raise is to support the price of the equity being sold. It means the disclosure was selected, timed, and framed by a party with a direct financial interest in your believing it. You should apply the same discount you'd apply to any seller's own description of the asset.

InvestmentBiker

The Anthropic headline reads bullish, but the fine print is doing most of the work. These “first profitable quarter” numbers are leaked mid‑raise, based on a quarter that hasn’t closed yet, and use a custom profit metric that conveniently excludes stock‑based compensation – for a frontier lab where SBC is one of the biggest real economic costs.

kingjdin

I'm sorry but this is complete bullshit. Here's why: 1. Start with where the numbers actually came from. Anthropic did not publish a financial statement. Every outlet is reporting figures that were, in the wording of the coverage, "shared during an ongoing funding round" and "told to investors." That is the single most important fact in the story and the one the headlines bury. You are not looking at a company's reported results. 2. The quarter has not happened. Today is May 21, 2026. The "first profitable quarter" is the June quarter — Q2 2026 — which is not over. The $10.9B revenue figure and the $559M operating profit are forecasts. The verbs in the coverage give it away: "expects to," "is projected to," "is on track to," "is about to." A headline announcing a profitable quarter that has not closed is reporting an intention, not an outcome. You would never let a company you were underwriting book a result you hadn't seen settle; this is the same thing dressed as news. 3. The profit metric is explicitly non-standard, and the non-standardness is favorable by construction. The reported operating profit "includes model training costs but excludes stock-based compensation." For a company like Anthropic, stock-based compensation is one of the largest real economic costs of running the business, and excluding it from "operating profit" is not a conservative or even neutral choice. Whoever defined that metric chose a denominator of costs that produces a positive number. $559M of "profit" on $10.9B of revenue is a \~5% margin; if SBC is anywhere near the scale typical of a frontier lab in an active funding round, that thin margin plausibly inverts to a loss under GAAP. A metric that flips sign depending on which real expense you include is a marketing metric. 4. The "revenue" itself is doing unspecified work. The coverage swings between a $10.9B quarterly figure, a $43-44B annualized run rate, and a separate $30B "annualized revenue" claim from a different commentator. These are not the same thing. They are conflating recognized quarterly revenue with run-rate. There is also no disclosure of gross-versus-net treatment. A large share of Anthropic's revenue flows through cloud-provider marketplaces (AWS, GCP). Whether a dollar of customer spend that passes through a reseller is booked gross or net materially changes the headline number, and a leaked deck will not tell you which convention is in use. Without that, "$10.9B" is not a defined quantity. 5. The timing is the tell. These figures surfaced "amidst an ongoing funding round expected to value the startup above OpenAI." The function of leaking flattering forward projections during a raise is to support the price of the equity being sold. It means the disclosure was selected, timed, and framed by a party with a direct financial interest in your believing it. You should apply the same discount you'd apply to any seller's own description of the asset.

kingjdin

I'm sorry but this is complete bullshit. Here's why: 1. Start with where the numbers actually came from. Anthropic did not publish a financial statement. Every outlet is reporting figures that were, in the wording of the coverage, "shared during an ongoing funding round" and "told to investors." That is the single most important fact in the story and the one the headlines bury. You are not looking at a company's reported results. 2. The quarter has not happened. Today is May 21, 2026. The "first profitable quarter" is the June quarter — Q2 2026 — which is not over. The $10.9B revenue figure and the $559M operating profit are forecasts. The verbs in the coverage give it away: "expects to," "is projected to," "is on track to," "is about to." A headline announcing a profitable quarter that has not closed is reporting an intention, not an outcome. You would never let a company you were underwriting book a result you hadn't seen settle; this is the same thing dressed as news. 3. The profit metric is explicitly non-standard, and the non-standardness is favorable by construction. The reported operating profit "includes model training costs but excludes stock-based compensation." For a company like Anthropic, stock-based compensation is one of the largest real economic costs of running the business, and excluding it from "operating profit" is not a conservative or even neutral choice. Whoever defined that metric chose a denominator of costs that produces a positive number. $559M of "profit" on $10.9B of revenue is a \~5% margin; if SBC is anywhere near the scale typical of a frontier lab in an active funding round, that thin margin plausibly inverts to a loss under GAAP. A metric that flips sign depending on which real expense you include is a marketing metric. 4. The "revenue" itself is doing unspecified work. The coverage swings between a $10.9B quarterly figure, a $43-44B annualized run rate, and a separate $30B "annualized revenue" claim from a different commentator. These are not the same thing. They are conflating recognized quarterly revenue with run-rate. There is also no disclosure of gross-versus-net treatment. A large share of Anthropic's revenue flows through cloud-provider marketplaces (AWS, GCP). Whether a dollar of customer spend that passes through a reseller is booked gross or net materially changes the headline number, and a leaked deck will not tell you which convention is in use. Without that, "$10.9B" is not a defined quantity. 5. The timing is the tell. These figures surfaced "amidst an ongoing funding round expected to value the startup above OpenAI." The function of leaking flattering forward projections during a raise is to support the price of the equity being sold. It means the disclosure was selected, timed, and framed by a party with a direct financial interest in your believing it. You should apply the same discount you'd apply to any seller's own description of the asset.

kingjdin

I'm sorry but this is complete bullshit. Here's why: 1. Start with where the numbers actually came from. Anthropic did not publish a financial statement. Every outlet is reporting figures that were, in the wording of the coverage, "shared during an ongoing funding round" and "told to investors." That is the single most important fact in the story and the one the headlines bury. You are not looking at a company's reported results. 2. The quarter has not happened. Today is May 21, 2026. The "first profitable quarter" is the June quarter — Q2 2026 — which is not over. The $10.9B revenue figure and the $559M operating profit are forecasts. The verbs in the coverage give it away: "expects to," "is projected to," "is on track to," "is about to." A headline announcing a profitable quarter that has not closed is reporting an intention, not an outcome. You would never let a company you were underwriting book a result you hadn't seen settle; this is the same thing dressed as news. 3. The profit metric is explicitly non-standard, and the non-standardness is favorable by construction. The reported operating profit "includes model training costs but excludes stock-based compensation." For a company like Anthropic, stock-based compensation is one of the largest real economic costs of running the business, and excluding it from "operating profit" is not a conservative or even neutral choice. Whoever defined that metric chose a denominator of costs that produces a positive number. $559M of "profit" on $10.9B of revenue is a \~5% margin; if SBC is anywhere near the scale typical of a frontier lab in an active funding round, that thin margin plausibly inverts to a loss under GAAP. A metric that flips sign depending on which real expense you include is a marketing metric. 4. The "revenue" itself is doing unspecified work. The coverage swings between a $10.9B quarterly figure, a $43-44B annualized run rate, and a separate $30B "annualized revenue" claim from a different commentator. These are not the same thing. They are conflating recognized quarterly revenue with run-rate. There is also no disclosure of gross-versus-net treatment. A large share of Anthropic's revenue flows through cloud-provider marketplaces (AWS, GCP). Whether a dollar of customer spend that passes through a reseller is booked gross or net materially changes the headline number, and a leaked deck will not tell you which convention is in use. Without that, "$10.9B" is not a defined quantity. 5. The timing is the tell. These figures surfaced "amidst an ongoing funding round expected to value the startup above OpenAI." The function of leaking flattering forward projections during a raise is to support the price of the equity being sold. It means the disclosure was selected, timed, and framed by a party with a direct financial interest in your believing it. You should apply the same discount you'd apply to any seller's own description of the asset.

Ape-With-Darts

Buybacks are. SBC at that level is not.

MyLifeOfficial

Of course I'm oversimplifying, but $60M SBC and $121M buybacks. Basically management is extracting cash from shareholders' wealth.

MelkorKush

What % of cash flow are OpenAi, Anthropic and SpaceX spending on SBC?

89percent

$HGV - What did I miss? Positions: Long HGV On paper, HGV looks like a good business. EBITDA at around 20-25% of market cap, and stock buybacks around 15% of market cap annually. However the stock has been been mostly breakeven ever since IPO. Am I missing something? Is there some accounting twist, like SBC, that breaks it? Is it the acquisitions? Anyone with positions who have opinions?

Rock_or_Rol

Circular financing + not accounting for rapid depreciation + SBC inflation = PE isn’t what it appears

jeebus87

This is the kind of content that actually makes this sub worth reading. The diluted share count filter is key. So many companies announce buybacks while quietly diluting through SBC on the other side. The fact that adding debt control mostly helped identify bad buybacks rather than good ones is a useful insight. Saved.

Aware_Secret_8910

Then it is hard to compare evaluations to the past considering SBC became much bigger in the last decade

Verza_96

Yes, I have my own thesis. I’ve been long $ZETA since the stock was in the $30s, and I’ve continued to average down as the risk/reward became more attractive. For me, the thesis is not based on hype or a short-term trade. It is based on execution. Zeta has now delivered 19 consecutive beat-and-raise quarters, while continuing to grow revenue, expand large customer relationships, and increase customer monetization. What I like is the combination of top-line growth, operating leverage, improving free cash flow, and a clearer path toward GAAP profitability. SBC and dilution are still key items to monitor, but the direction matters: if stock-based compensation keeps becoming less relevant as a percentage of revenue and the company continues to scale profitably, the equity story becomes much cleaner. So my view is simple: $ZETA is still a high-execution story, but if management keeps compounding revenue, expanding enterprise customers, improving margins, and controlling dilution, I believe the market may eventually value it more like a durable AI-driven marketing platform rather than just another small-cap software name.

CannaVestments

A decent start to the year for Curaleaf. On the positive side, the top-line came in well ahead of expectations with 5.7% YoY growth (grew both internationally and domestically) and aEBITDA was modestly ahead of expectations as well. Despite the beat, the aEBITDA margin of 19.6% was their lowest showing going all the way back to 2020 following in Verano's footsteps here suggesting price compression remains ongoing. Cash flow dropped a bit with some accrued expenses paydown although was enough to more than offset $17M in Capex spend as Cura continues to reinvest in the business and sees opportunities ahead. Management was very excited about the opportunities ahead: growth from the federal ban on hemp, potential for banking legislation given ongoing momentum, and the potential to ship cannabis from the US to their international business. Full review: **Revenue:**  QoQ: $333.1M to $324.2 / YoY: $306.6M to $324.2M *Nice beat here on consensus($317M), down sequentially with seasonality but up 5.7% YoY (good to see). Growth on both the domestic and international side YoY, although the international side was down sequentially for the first time. 5 new stores opened during the quarter- 2 in FL, 2 in OH and 1 in Maine.* **Adjusted EBIDTA:**  QoQ: $69.0M to $63.4M / YoY: $66.1M to $63.4M *Down sequentially and YoY but ahead of expectations ($61.4M). Margin drops to 19.6%, down from 20.7% last quarter and 21.6% last year- their lowest margin since 2020.* **Gross Margins:**  QoQ: 48.6% to 48.5% / YoY: 50.7% to 48.5% *Roughly flat sequentially and down a bit YoY- at a good level.* **Operating Expenses:**  QoQ: $158.9 to $156.5M / YoY: $146.2M to $156.5M *Down sequentially- good to see given new store openings although up YoY due to higher SG&A and SBC. Still pretty steep here relative to peers.* **Operational Cash Flow:**  QoQ: $42.3M to $21.0M / YoY: $38.4M to $21.0M *Drop here- although in part due to an outsized account payable paydown in Q1. CapEx was $17.0M in Q1 for FCF of $4.3M- still re-investing a good amount into the business.* **Cash:**  QoQ: $101.6M to $106.1M *Positive OCF somewhat offset by CapEx spend- not much else here. Debt stands at $565M and UTP actually went down quite a bit the the tax provision benefit they took (not sure why) and stands at $439M.*

Rock_or_Rol

We are though.. lol Circular financing, SBC earnings inflation, insane capex on rapidly depreciating assets, a gargantuan portion of the market dedicated to it, insane froth and it’s all based on speculation. What makes it especially bubbly is a massive portion of the buyers operate on a greater fool theory too, “this is not sustainable and it will crash, but will buy it and sell it to someone for a greater price in the meantime.” Bubble doesn’t mean much until the pin prick though… who knows too? Maybe LLMs get a nominal improvement and begin an exponential growth rate again by then.. personally, I don’t think the trillions and trillions of dollars are going to wait around much longer, especially if rates get a nice little hike

Shankur52

Non gaap is more accurate on AMD since Xilinx amortization is still a big paper expense(goodwill). Non gaap does include SBC etc so it's not 100% accurate but closer than gaap p/e atleast.

tokyoduck

The adults have taken over the company and are now in the room. Staff lay offs, reduction in SBC, massive stock buybacks + continuing to grow. This company is only valued at 12 billion. With 4-5 billion in revenue that only puts it at 2.5 sales.

CamxThexMan3

if AI can destory unsophisticated SaaS right now, think five years beyond ... Software margins are likely to continue to contract & stock based compensation (SBC) is a cancer. You just get diluted constantly.

ZarrCon

On a GAAP basis most SaaS names are still quite expensive. If SBC was lower, many might actually be compelling investments right now, even in a case where future cash flows stagnate.

MandingoPants

lol at the atlassian call out. Tell me you don't know jack about stocks without telling me.  "BUT SBC is GAAP!" 

Aware_Secret_8910

Might be good short term but investing long term in a SBC fueled SaaS has too many risks that are not even business related

smelly1ndian

How much was SBC this time 

P_e_n_i_sss

Looks like SBC is coming down a lot too

Rock_or_Rol

Deepseek v4 WW3 possible Possible oil crisis Super El nino potentially forming Insane valuations + circular financing Insane productivity costs on current LLMs SBC earnings inflation < Earnings week!!! Woo!!

Rock_or_Rol

Am I regarded or is the bubble pop like very nearly imminent? Circular financing + SBC earning inflations + unproven hype + depreciating assets + insane valuations A rate spike is what popped the dotcom.. an oil shock = a rate spike.. we are experiencing an oil shock Idk.. I think LLMs will play a large role in the future, but it’ll probably take another few years or a decade.. and trillions of dollars don’t sit around for that long on a maybe

newplayer28

Why would it worth anywhere near a trillion? Get real. They will need to have diverse revenue streams, not just data licensing and ad's. Bull case seems more real anywhere near 100b market cap, after that, it's getting way too expensive because it's just the 2 things I mentioned above and while I know the importance of the above, it's not enough to make it into a half a billion dollar company.. lol. Plus they will keep SBC high because there is no use for all the cash they generate anyways.

Rock_or_Rol

Michael Burry of 'The Big Short' fame is known for predicting the 2007-2008 housing crisis and financial crash. Now, the former hedge fund manager — who's earned a reputation for spotting potential bubbles — argues in a recent Substack that Wall Street has been overstating tech earnings by 42% over the past decade (1). This comes at a time when the AI boom has led to historic highs for tech stocks, which is simultaneously stoking fears of a bursting AI bubble (2). Burry's comments aren't off the cuff. He came to this conclusion after analyzing more than 1,000 annual reports from Nasdaq 100 companies going back 10 years. "Where there is money to be made, there is manipulation," he writes The math behind the claim Burry claims that tech companies have improperly accounted for stock-based compensation (SBC) over the past decade. As a result, investors have been paying inflated prices. Those prices are based on a loose interpretation of Generally Accepted Accounting Principles (GAAP), which are a standard set of rules used in financial reporting to ensure transparency and consistency. But Burry argues that tech companies are treating SBC as "free" compensation for employees — and not accounting for real costs. As a result, the Nasdaq 100 earnings of primary tech companies are overstated by nearly 20%, he writes, because SBC costs aren't fully factored in. "Of every dollar of earnings per share that GAAP blesses, shareholders see only 83.49 cents of that dollar," he writes. He highlights companies like Meta, which he says overstated owner earnings by about 20%. Other companies he points to include Datadog, Workday, Axon, Shopify, Palantir, Marvell, CrowdStrike and Zscaler. Burry writes that Tesla's use of SBC was so significant, the GAAP overstatement was reduced from about 20% to 12.5% simply by removing Tesla from his analysis. During the past decade (ending in fiscal 2025), 97 tech companies in the Nasdaq 100 reported $4.9 trillion in cumulative CAAP net income, according to Burry. But Wall Street analysts include SBC in their analysis, bumping that number up to $5.8 trillion. That, says Burry, leaves an "earnings illusion" of $1.7 trillion. "Wall Street over the last 10 years guided investors to 42% more earnings than ever actually existed," he writes. Burry has previously warned that AI hyperscalers are artificially boosting their earnings by understating the depreciation of their assets (3). Broader implications for investors The practice of improperly accounting for SBC "skews valuation metrics, making companies appear more valuable than they truly are," according to American Bankruptcy Institute Journal, per FTI Consulting. "Analysts and investors often accept these adjusted figures without question, leading to inflated market perceptions (4)." Unless investors push back, then "widespread reliance on adjusted EBITDA as a performance measure will continue distorting financial evaluations and misleading stakeholders (4)." Many Americans own stocks through 401(k) plans or index funds, which are increasingly concentrated in major tech companies. So they could face significant losses if valuations were to normalize. Out of 2,013 U.S. stock funds (excluding sector funds) screened in Morningstar Direct, an investment analysis platform, Morningstar found that 119 of those "had 50% or more of their assets in tech, while 298 had a 40% or higher allocation (5)." And those numbers are understated, since some investors categorize tech stocks under different sectors — such as categorizing Meta and Alphabet under the communications services sector (5). That means 401(k)s and index funds that are heavily concentrated in tech stocks are more vulnerable to market volatility — and, potentially, overvalued assets. For retirees and near-retirees, this poses a conundrum. With the rising cost of living (6) — including rising healthcare costs — retirees and near-retirees want their investments to beat inflation. Yet, there are growing fears of an AI bubble — and now, with Burry's analysis, there's a new concern to add to the mix. Most financial professionals recommend a diversified approach to manage risk and reduce volatility. That means spreading investments across different asset classes, sectors and geographies for more consistent long-term returns. Investors need growth and risk protection. And that's shifting the investor mindset, Mike Loukas, CEO of TrueMark Investments, told CNBC's ETF Edge. Nowadays, many retirees are looking for "performance that's good enough" rather than trying to beat the S&P 500 (7).

Deviilsadvocate7

The point I believe is that the cost of those shares is being reported at CURRENT prices when granted to employees but the ACTUAL cost by the time they vest years later is often much higher than what was initially accounted for as the value of those shares has likely gone up over time. So the cost of SBC may be far higher than initially reported if I’m understanding correctly.

bananastock

Not really and they usually specify it's to offset SBC

NiceWeather4Leather

Yea but GAAP is now a sack of shit for any comparable company at this valuation. Non-GAAP is ok by ignoring SBC, including warranty and tariff relief so it’s just ignoring a real expense and adding in “lucky one-off timing” events whilst the actual core business continues to shrivel.

Rock_or_Rol

Burry’s display of tech earning SBC inflation from last week probably. Robust earnings was supposed to be one of the differentiators as to why we are different than the dotcom bubble 😂

ASKMEIFIMAN

Prior to 2005 SBC wasn’t recorded as an expense in many cases on the IS. For that reason earnings were inflated during the dotcom bubble.

insightful_pancake

SBC doesn’t inflate earnings. It inflates CFO

ASKMEIFIMAN

And then also remember how SBC and other accounting changes have inflated PEs today

armadillo_stocks

It’s higher than SBC but not by a huge amount And only 15% of buyback is completed

Rock_or_Rol

Don’t forget the SBC earnings boost!

LetFit6506

I am not sure if he gets his SBC in that class of shares. Still if you are right , why would he sell to an investor at the current prevailing market rate his shares with voter rights (without any premium). Nevertheless, something is cooking and the SNAP market is back to 6 levels and hopefully will cross 6.3 soon which is the average of many like me.

chris_nore

Are they being outcompeted by frontier model cos + Google though? Google releases and kills a new product a month. Claude Cowork is big on announcing all the professions they’re automating while the desktop app is super buggy and 80% complete. The designers I know are still using Figma. I do know some developers messing around with these new tools but primarily as a vibe design tool for expressing ideas. I think the Figma selloff is based more on perception, unrealized risk from other design tools and SBC more than anything else at this point

Rock_or_Rol

Well, bullish news is was reversed. Oil shortage is going to start biting a lot harder very soon. There should be a lot of profit taking and more risk hedging. Burry just announced that one of the key differentiators between the LLM bubble and dotcom bubble is actually false and they’ve been inflating their earnings with SBC while mythos hype isn’t really confirmed yet.. So.. we’ll probably get another ATH

Firm_Balance_8285

SBC doesn't "clearly" maximize shareholder value. Often times it's used as part of excessive executive compensation packages negotiated between management and a captive board.

dudrun

Great explanation. Quick question tho, I always thought SBC was from the company’s stock buyback pool. Am i wrong to assume that?

newebay2

sbc clearly maximizes shareholder value in ways that it motivate employees to work harder across the board. It isn't some accounting secret either, SBC is clearly stated on the balance sheet

No_Yogurtcloset7776

And SBC is also included in SG&A. So it literally does take from the bottom line too

smallwolf06

They pay a lot in SBC. Slightly offset with their buy backs but not enough. Problem is that SBC is basically table stakes to keep hiring and keeping talent so it wont go away. With saas names though I wouldn't size too big right now. Everytime anthropic releases anything at all they all shit the bed.

beerion

It does for a single year, but the erosion to shareholders happens over time. Like if you're building a DCF, you can account for SBC by either tracking per-share numbers through time (which share count changes as they continue to dilute). Or by simply subtracting SBC from CFO and dividing by today's share count. Both should get you to the same place.

beerion

Imagine a company has 100 shares of stock and you own 1 share. They expect to earn $100 of cash next year. You're like "cool, I expect to earn $1 for my 1 share in the company". But then it gets to the end of the year, and now there's *magically* 110 shares - 10 new shares are given to employees as part of their compensation. They still earned $100 in total cash, but now your claim to it is only 90¢... which is less than the $1 you expected to make. It's so bad for some companies that they'll claim to have "adjusted" earnings of a couple billion dollars, but when you account for the dilution aspect, it could be close to $0. Atlassian ($TEAM) is the perfect example of this. They trade at a forward PE of 12x... which sounds obviously cheap, and implies that they'll make close to $1.4 billion in earnings next year. ***But they've never turned a profit using GAAP standards.*** Last year, they paid out $1.5 billion in SBC.

xampf2

You are right... I didin't do a real deep dive just a 1 minute glance. Outstanding shares looked flattish to me and SBC was about $1.3bn so I just assumed they run the same playbook. As you said its actually worse. They can't even "afford" the SBC without taking from stockholders.

Rock_or_Rol

No problem! Idk, when those indexes have such a large portion dedicated to tech and AI, a sector with insanely high capex built on circular financing and those tech companies are inflating their earnings with SBC shenanigans.. when inflation edges higher and higher with a working class being squeezed out of being able to afford food and shelter, let alone hospital expenses. When energy is being strained only for the world to possibly undergo one of the largest energy shocks in history.. to let our financial institutions use that industry as collateral, the bubble gets more bubbly. Just because it hasn’t crashed yet doesn’t mean it won’t 😂 bears just have to be right once

gizamo

Tbf, it's SBC.

zelda__

Burry is a redditor that visits the Reddit stock subreddit complaining about SBC 😂

beerion

This is for non-GAAP reporting. If you use the income statement to find net earnings (which are GAAP), you're going to account for this...its still not perfect because SBC is reported at grant price and not vesting price, but it should be close enough. I made a post [warning about forward PEs](https://www.reddit.com/r/ValueInvesting/s/6bh2gy7e6m) a little while ago for the same reason as Burry, though. When you hear things like "I get that trailing PE is 35x, but look at the forward PE - its 21x!", be careful. Those market commentators don't realize they're comparing apples to oranges.

Ahamadrayasbaboon

We gripe about dilution, but buybacks are the opposite. We don’t have to agree; we’ll just buy (some) different companies. I go for growth companies, too, so we’re not completely different. But I do like when they eventually reverse the dilution or offset SBC. 

Realistic_Penalty_99

Are we looking into the same numbers? I see for AVG Q4 FY2024 number of shares outstanding 226 mil, AVG for Q4 FY2025 511 mil. For 2025 I see 1.36 Bil USD SBC and no buybacks. It seems to me that Figma cant afford buybacks so they are just creating lots of new shares. https://investor.figma.com/news-events/news/news-details/2026/Figma-Announces-Fourth-Quarter-and-Fiscal-Year-2025-Financial-Results/default.aspx

billypalmier

That’s why people use normalized diluted EPS and check the accounting of a a company to check for issues like earnings from sales of assets, SBC, debt usage. Right? 😂 Yes it’s a bubble, but no one cares till liquidity goes it seems so don’t get your hopes up but wear a safety helmet.

VeryStableGenius

> Most tech companies increase PE 20% YoY. Wait, that's bad - if you increase PE by 20%, this means, eg, that stock price goes up by 20%, but earnings stay constant. I want PE to fall as profits rush to catch up with valuations. And eventually they should exceed the value I bought at (meaning that PriceInitial/EarningsFinal is significantly less than P/E of mean market), because I need to be paid a bonus for takig this extra speculative risk, instead of of having invested in a value fund. Burry seems to be claiming that the customary way of reporting dilution doesn't account for this. I had Gemini summarize this because his article is hidden behind a Substack paywall. > The "Net" Zero: He argued that many tech giants' "record buybacks" aren't actually reducing share counts. They are simply offset by massive SBC grants. The Valuation Trap: He analyzed the "recurrence"—how companies are forced to issue exponentially more shares when their stock price stagnates to maintain the same dollar-value compensation for employees. And > In Bull Markets: SBC acts as a hidden subsidy, making companies look more profitable than they are by keeping cash on the balance sheet. In Bear Markets: SBC becomes a "Tragic Recurrence." As the stock drops, the dilution required to retain staff accelerates, which puts more downward pressure on the stock, creating a feedback loop that "recurs" until the company's valuation is completely re-rated.

throwawayMI12345

I don’t think he’s claiming their reported results are incorrectly applying GAAP. It’s more that the market and Wall Street have fully accepted all of these “adjusted earnings” that are infused in SEC filings. He quotes Adjusted EBITDA as an example, where SBC is excluded as an expense. SBC as an add-back is BS for all the reasons he says about dilution. Another way to look at it is if company A issues 100 shares to fund higher bonuses and company B issued and then gifted those 100 shares (same value as the bonuses) directly to their employees as compensation rather than give the bonuses…. Company B has a higher adjusted EBITDA even though both companies in totality did the exact same thing, just through different mechanism.

xampf2

1. SBC awared to employees diluting shareholders 2. The diluted amount is "neutralized" with buybacks That is cash directly going to stock awards. Hence "cash goes to SBC". You see it in every other SaaS company.

TheGreatestOrator

There is no cash moving, that’s the whole point of SBC

Potential_Yellow_427

„Cash goes to SBC“ that statement makes no sense 🤔

captaingabbi

But if earnings are overstated, that means expenses have to be understated. SBC has no impact on Cash Flow, and it’s definitely an expense that would impact earnings. The article doesn’t really identify the loosely defined GAAP interpretation, and then mentions an adjusted EBITDA, a non-GAAP measure. And dilution impacts are reflected in the EPS footnote disclosure. So what’s the overstatement?

PoutineMeInCoach

> GAAP accounting for SBC is obfuscation No, GAAP accounting is fine on SBC. What is wrong is that the companies claim their earnings are a different figure from GAAP, and analysts, financial media, and the companies themselves keep calling it "earnings" even though it is GAAP earnings inflated by adding back the imputed cost of SBC. Everyone has chosen to go along with the charade, but not the accounting profession.

FriedRice2682

I think what he meant is that those companies couldn't afford to pay those employees at their current salary (SBC included) and therefore those companies rely on shareholders footing the bill by the effect of dilution. I think he only means that those AI companies have **13%-20%** of their "cashflows" (salary expenses) directly paid by their shareholders. That's a f*cking lot and that says a lot about how their cashflow is shit.

Amaeyth

I love that I knew the acronym immediately. Thanks for the summary; saved me a read, and honestly I agree. SBC has been pretty contentious

xampf2

So that market is already saturated. And yet they are also not GAAP profitable. All cash goes to SBC.

OscarF2P

>Yet the dude is talking about how GAAP accounting for SBC is obfuscation its cost and is being treated as essentislly "free compensation", and his claim is "that shit aint free" and if you factor in the value it diverts from investors its about 20% of earnings. Warren Buffett has been crying about this for a long time.

Woodeecs

"Burry writes that Tesla's use of SBC was so significant, the GAAP overstatement was reduced from about 20% to 12.5% simply by removing Tesla from his analysis." If this is true, and you can somehow predict when the market will correct for this, it will be the largest wealth gain opportunity in the last 5 years.

Mike804

That one of the main reasons I avoid RBLX like the plague, their SBC is insane and the fact that it is added back to EBITDA makes sense on paper but is highly misleading

ledeuxmagots

To be fair. Institutional investors account for this. I spent a lot of time adjusting earnings reports for SBC in my prior life.

Fermit

To both this post and your response to u/eisbock \- not really, no. I'll address the points in this post first and then the points in your other one. >Every professional investor who sets the market for these stocks understands the dilution, economics, and adjusts price accordingly This is patently untrue. Not all professional investors are created equal - they have different skillsets and specialties. They're not identical machines that have access to the same amount of computing power and a massive repository of the same information, they're not omniscient market gods, and they're not vastly more intelligent than everyone else. They're mostly just people who are able to play in financial markets because they have enough money. Some really know their shit when it comes to the areas they invest in, others are simply playing at the casino because they can. The impact of the myriad interactions between different components of financial statements in different market conditions is a wildly complex science all on its own, and it's not even close to being the only component of valuation. The vast majority of participants are not PhDs with an extremely deep academic understanding of even a single part of what goes into valuation, and not a single person on this planet understands every part to that degree. >Share-based comp doesn’t let you “cash out early”, in fact it has a vesting period. Most people sell the shares immediately when they vest, which is a different story This doesn't sound right to me, but I can't find any studies on when people generally cash out of their stock-based comp, so I can't definitively say it's incorrect. There are plenty of financial incentives to hold stock-based comp, and private stock is far less efficiently priced than public stock, so I doubt that this is as universal of a practice as you make it sound. On top of that, the "cashing out before bad news becomes public" point generally only applies to people who are privy to that information, which would be executives and C-suite rather than run-of-the-mill employees, and they most definitely do not immediately cash out as soon as they receive SBC. >The market is inefficient estimating forward growth and discounting future cash flow or earnings. The market IS efficient modeling relatively simple accounting mechanics like share based comp. 1. Efficiency is a matter of degree and proportion. The market is *less* efficient at estimating forward growth and future CFs & earnings, but just because it's more efficient at modeling simpler mechanics doesn't mean that it's properly pricing in *all* of those simpler mechanics *all* of the time. There are a trillion moving pieces, all constantly shifting in relation to one another, and the market's ability to value them "perfectly" is constantly in flux because, for less important pieces, "good enough" truly is good enough. 2. Market efficiency is achieved over the long term, and short-term inefficiencies can persist for a *long* time for a variety of reasons. An inefficiency might not be a significant enough portion of the market to garner the attention of enough market participants to set it right (i.e. the money just isn't there at the moment), or persistent market exuberance may even reward market participants for inaccurately pricing something. That was one of the main factors in the 07-08 bubble that Burry made a killing off of - ratings agencies, big banks, and lenders were all being actively rewarded for turning a blind eye to the existence of the time bomb that they were all building. Stock-based comp has grown massively in the last twenty years. Our previous valuation methods might have been sufficient when it was a smaller piece of the puzzle because a higher level of analysis wasn't necessary for something less significant - if something is only .4% of the balance sheet, pricing it perfectly isn't an efficient use of time or resources when there are far bigger pieces to analyze. However, [if it grows to become a much bigger piece](https://www.equitymethods.com/articles/how-investors-analyze-sbc-and-why-it-matters-for-finance-leaders/) (say, **a 5x bigger piece than it was 20 years ago**), that is when our previous valuation methods start getting stress-tested. Maybe it's not bad enough yet and it grows to 10x what it was before the dam breaks, but if Burry is right, it will break eventually.

SoylentRox

The issue is that tech companies, even *with* a 20% discount on their earnings...still earn more clear profit than essentially any other industry. Also its not like P/E is the only factor, share prices gets dragged down by SBC as it dilutes all the current shareholders.

ouncez

Google tells me GAAP requires SBC be recognized as an expense. It's not free compensation.

throwaway490215

SBC is free because supply-and-demand valuation only works when: - Both sides are constraint - One side is constraint and the other is artificially controlled Whereas with modern (tech) stocks you'll sometimes literally induce demand by adding more supply.

Laxman259

Every company reports with GAAP accounting and discloses their SBC in black and white.

Due-Percentage5627

What’s his point??? SBC reduces PE multiples initially on the E and then once granted on the P

DeadSeaGulls

it's pretty wild to pretend that that there isn't a significant amount of insider trading among a large portion of those receiving SBC. Yes, on paper that's not how it should work, because on paper people are following the rules/laws. in reality, there's a lot of very powerful market manipulation happening and not a single regard on this sub is in the inside of that circle. We're all just doing our best to estimate the volume of that manipulation and insulate our personal risk in consideration of it, and the truth is that the VAST majority of normal folk/investors/even professional investors, are the ones caught holding the bag when the markets get hit and the ruling class always manages to make out like bandits.

Kerostasis

The fact that Tesla alone represents 1/3 of the SBC among the whole list of 100 companies suggests that maybe this is more “wtf is going on with Tesla” than a genuinely broad trend.

skystarmen

JFC the SBC and how it impacts earnings is something anyone who follows tech with half a brain has known about for many many years now This guy is a clown that's chasing engagement and attention

insbordnat

Doesn't show up? SBC is picked up as fair value immediately and amortized/included in expenses as comp expense unless it's capitalized - regardless, it's fully disclosed how much expense is running through. And dilution is factored in as well. Selling/exercising is not a driver of expense. That was changed what, 20 years ago?

gman820

Pretty sure Buffett has routinely called this out. “Adjusted” EBITDAz SBC and DA is free!

Apollo555

Sounds like he is calling a bubble. And for exactly the reason everyone thinks. If all companies invest in each other and report unrealized gains in their earnings, the stocks only go up and bubble gets bigger. Insert AI company circle jerk image here. Yes the SBC is cooking us all, but what are we supposed to do, not invest and just get steamrolled by inflation? Just don’t full port options and even if it crashes we will all still be fine in a few years.

Stiphlerr

Is this guy saying that companies are treating SBC as ‘free’ compensation? If you look at big tech’s 10-Ks, you will realize SBC is very much counted as costs, which is factored into GAAP

Jaded-Librarian-6092

I work in finance and am confused by this entire concept. During my IB years we would always incorporate SBC as a real expense into our DCF assumptions - if you didn't do that you had to at least take into consideration the share dilution by using the fully diluted share count. Pretty sure this is standard across the industry? I don't get where the "miss" is.