I've been meaning to look at equity dilution for stocks I own or I find interesting.
I sat down for 15 minutes today and tabulated the data.
Below stocks are sorted by annualized equity dilution.
I didn't include the raw data because it was too hard to format.
Note: This doesn't discern between Stock based compensation (SBC) dilution and equity raises.
here is a link to the raw data
[https://docs.google.com/spreadsheets/d/1zjXb63miTLnXjSnZD29d...](https://docs.google.com/spreadsheets/d/1zjXb63miTLnXjSnZD29dtvKlcTO5Zhvqvf5YySRlrPc/edit?usp=sharing)
% annualized dilution
HDP 14.8 11.3 if you take out their equity raise
VCEL 9.6
NTNX 8.8
SHOP 6.7
PSTG 5.6
HUBS 4.7
VRNS 4.3
TWLO 4.1
SQ 3.7
ANET 3.3
PAYC 2.7
ABMD 2.2
AYX 1.4
NVDA 1.2
TLND 0
UBNT -3.1
The data above made me look hard at my investment in HDP. Now I know why they are so cheap besides
that hadoop isn't in favor among the investing community. I decided to keep them since they now self
funding their operating costs and their SBC is trending down. Same story with VCEL. SHOP and
NTNX get a pass in my mind because they are growing so quickly and providing value. NTNX is still a
very young company. Hopefully they keep their dilution in check.
TLND and AYX are impressive, thank you to both for their shareholder friendly ways.
UBNT is making my investment in them more valuable every year.
as always, if anyone spots errors please let me know so I can fix them.
Thanks,
Ethan
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Would be nice to know what Equity Dilution means.
Insights by group members will hopefully make my question valid.
Versus, me typing it into Google . . . .
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I’d suggest starting with typing it into google and then coming back with questions. I say this gently, we are all giving our time.
https://en.wikipedia.org/wiki/Stock_dilution
Think of a company as a piece of pizza, cut it into 100 pieces(shares). You own one piece but you don’t get to eat it. Next year someone says, “we have more people (shareholders) to give pizza pieces, the pizza is going to be cut into 110 pieces” . So now your piece of pizza is a little bit smaller. Or in the case of HDP, if you bought in 2014, you piece of pizza is now half the size since there use to be 43 million pieces and now there are 80 million.
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Great info to consider
Ethan,
This is something that I look at too. I just look at SBC because I figure that the equity raises are not given away shares because the company gets the cash.
I look at the statement of cash flows each quarter to get the SBC number. Some companies report more than the past quarter (e.g. in Q3 they would report the past 9 months of SBC so I need to subtract the first 6 months of the year to get at the latest quarter’s SBC). Next, I total the TTM of SBC and divide by the market cap to get at the annual dilution. I consider 3% or less annual dilution to be very shareholder friendly. Here are the annual dilution numbers based on the most recent quarter’s SBC and the current market cap for the companies that I own:
NTNX: 1.8%
AYX: 0.5%
SHOP: 0.3%
SQ: 0.6%
NVDA: 0.3%
TWLO: 1.1%
NKTR: did not calculate
PSTG: did not calculate
ANET: 0.4%
I am VERY pleased with the above SMC policies of the companies that I own. And, yes, I wouldn’t even consider HDP as an investment because its SMC is so high.
Of course, when the share price has seen recent appreciation the dilutions looks small because the denominator is larger.
Chris
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My calculations seem to be higher than these. I’m wondering if I’m doing it wrong?
I take the diluted share count from the quarterly report (10-Q) and compare it to a year ago.
Taking SHOP for example,
Mar-2018: 105.6M
Mar-2017: 90.2M
~17%
(SHOP sold shares on secondary offering)
ANET
Mar-2018: 80.7M
Mar-2017: 77.5M
~4%
I don’t believe that ANET had any abnormal financing activity.
Ethan, your spreadsheet data doesn’t match numbers I can find… I have ANET at 80M now and 55M at the end of 2014
Chris, would your methodology underestimate dilution if the stock price was increasing?
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Hi Dopple,
Thanks for looking at the Raw numbers!
My calculations seem to be higher than these. I’m wondering if I’m doing it wrong?
In a word, no. Mine are annualized, so the only data I used was starting # and finishing # and then # of periods to calculate what is basically the CAGR of number of shares. For example, SHOP went from 80 to 84 million shares from 2016 to 2017. That would be = 5% increase in share count. But then went from 80-100 from 2015 to now, which is 3.4 years. That calculation is, (((Final share count/Starting share count)^(1/number of periods))-1)*100 which gives you 6.7%.
Ethan, your spreadsheet data doesn’t match numbers I can find… I have ANET at 80M now and 55M at the end of 2014
I’m using shares outstanding which is a slightly different measure than diluted shares. I found a website www.profitspi.com that had the historical numbers easily accessible so cut this exercise from multiple hours down to 15-20 minutes. Your fully diluted shares will include any convertible bonds, stock options, etc that haven’t been exercised so are more forward looking than what I used, and honestly, more correct. I don’t think it changes the message though.
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