Non-GAAP revenue $75.0 million, up 7%. GAAP revenue $199.2 million, up 157%.
Non-GAAP net income $4.1 million versus $1.5 million. GAAP net income $61.9 million versus $0.5 million.
Non-GAAP income per share $0.08, versus $0.03 per share. GAAP income per share $1.19 versus $0.01 income per share.
I happened across this in an earnings report of a company that I’m looking at. Which do you think gives a better view of how the the company is doing, just on the basis of this, GAAP or non-GAAP?
I wish there was a reply of neither or maybe both. More recently I have found an increasing number of occasions of non-GAAP earnings not fully representing the true cost of ongoing operations. Anyone who saw the last linkedin earnings report knows the pain you could feel if you fail to account for stock based compensation. Yes it is not a cash expense though it is still an expense and accounting for it in increased share count only leaves it largely ignored.
From Linkedin Q4 earnings release
Full Year 2016 Guidance: Revenue is expected to range between $3.6 billion and $3.65 billion. Adjusted EBITDA is expected to be approximately $950 - 975 million. Non-GAAP EPS is expected to be approximately $3.05 - $3.20. The company expects depreciation of approximately $380 million, amortization of approximately $180 million, and stock-based compensation of approximately $630 million. The company also expects approximately 135 million GAAP fully-diluted weighted shares and 137 million non-GAAP fully-diluted weighted shares.
If you divide the $630 million by the shares outstanding of $137 million you get $4.59/share in stock based compensation expense. Meaning you are being diluted by more then their entire non-GAAP earnings number. Yes it is a non cash expense but who cares if your ownership interest in that cash is being diluted away faster then their ability to generate it. It seems like non-GAAP can be quite misleading to me as well. Yes it is more consistent but who cares if it is a consistent misrepresentation.
More and more it seems share based compensation is being completely ignored eating away much of the returns available to investors. I have also seen various other expenses subtracted out that probably shouldn’t be such as legal expense, interest expense and various others.
Using the Linkedin example again. If you scroll down to the reconciliation to GAAP to non-GAAP and look at the year end 2015 numbers you will find the following. GAAP net loss of $166 million. Non-GAAP income of $373 million. Most of the difference is made up of adding back $510 million in stock based compensation. This is something that would likely go completely missed if you were only looking at non-GAAP numbers. These large share based compensation numbers with linkedin seem to be rather consistent and growing at least looking back to 2014.
I am not at all trying to start yet another argument over what is best GAAP or non-GAAP. I usually prefer non-GAAP earnings when companies keep their stock based compensation reasonable and are not excluding various other expenses that actually are legitimate business expenses. The only point I am trying to make is watching non-GAAP exclusively can get an investor into quite a bit of trouble. Instead every one of us needs to know what is being added/subtracted to get these non-GAAP numbers otherwise you risk missing a potential rather large expense that could hurt your returns.
I wish there was a reply of neither or maybe both.
There is only one GAAP result but there as many NON-GAAP results as investors willing to figure one out. One should check on management carefully and the way to do it is by calculating a NON-GAAP result one understands and is comfortable with. Buffet likes “owner earnings.”
Non-GAAP revenue $75.0 million, up 7%. GAAP revenue $199.2 million, up 157%.
Non-GAAP net income $4.1 million versus $1.5 million. GAAP net income $61.9 million versus $0.5 million.
Non-GAAP income per share $0.08, versus $0.03 per share. GAAP income per share $1.19 versus $0.01 income per share.
Well, I’m totally amazed that GAAP even got 16% of the vote!
Does anyone really think that real revenue for this company really was up 157%???
Revenue? Up 157%? Year over year?
Does anyone really think that real net income went from half a million to $62 million year over year???
And that that was more realistic than $1.5 going to $4.1 ???
Does anyone really think that real income per share went from 1 cent to 119 cents year over year???
And that that was more realistic than 3 cents going to 8 cents ???