TWLO and the Float

Investment Analysis Clubs Saul’s Investing Discussions
#1

Greetings -

I have been reading this thread for a long time but never really post as I consider myself new to individual stock investing (mostly just mutual funds and ETFs in the past). I have learned a lot from everyone posting, thank you for that.

I have a question that I would love some comments on, as you guys/gals appear to have a ton of experience doing this kind of thing.

I am looking at TWLO as an investment now that it has come down in price to where it should be, but one thing I am having trouble grasping is the outstanding shares verses the float. I understand what they mean as a definition, but how will that affect the price. Right now TWLO has 84 million shares, but the float is only 9.3 million. I am assuming TWLO will keep offering up these shares to the market over time? If TWLO keeps offering up new shares into the float will that negatively affect the stock (generally speaking)?

I have noticed a lot of new IPO issuing doing this. Is this something new or is this the common way companies become public?

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#2

I would like to understand floats better too, Pigskin. Sorry I can’t help but maybe my bumping your question will bring it to the attention of someone who knows.

Yahoo says the float is 28.96M shares and shows 34.41M shares outstanding (which isn’t even close to right on that second figure…it’s like 86M or so)

Finviz shows 14.83M for the float but gets close on shares outstanding with 89.45M.

Morningstar has the float at 8.59M and shares out at 87.13M.

I’m not sure why websites even try to track share count numbers because they are often very wrong.

Bear

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#3

pigskin,

I’m a functional user of statements (meaning I have a hazy inprecise understanding), so won’t be able to give you a great answer, but float usually refers to shares that are being freely traded - which means there will be more shares eventually released from selling shareholders which could conceivably cause the stock to move if those folks want to sell. But float is a SUBSET of outstanding shares, and when you get the share count for each ending quarter it should include that float part.

On share count, I always go with a couple things:

*https://investors.twilio.com/news/all-news/press-release-det…
always go to the direct source - the actual news release from the company
NEVER use secondary sources!

Look for the 3 month ending the period in question (12-31-16 here) - not the annual numbers cause those are averages for 12 months. Even the 3 month is an average, but an average of 3 months - so the true ending count could be bigger or smaller.
Here, the consolidated statement of operations - shows 86,132,737
However, this company is not profitable, and dilutive shares won’t be included (a math issue - they mess up the math of this computation, so anti-dilutive shares aren’t included).

But TWLO provides another section - reconciliation to non-GAAp financial measures which shows the share count as 100,206,672

That’s the count I would use for now. Without digging, that’s what I’d go with, but there is enough weirdness here where I’d wonder if the count wasn’t even bigger.

–

for all companies, you can look up the share count note in the Q or K and see how many shares are anti-dilutive and at what prices. If you really want some fun, you can see how the count will change based on a rising price, but I’ve never found anything that concluding a company is ‘abusive’ or not to be a great use of time…

hope this helps a little

–

this board sometimes tends to favor really hard to grasp companies - not always, but sometimes…

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#4

a fwiw

I talked this over in this thread - how restricted stock is accounted for on financial statements - with a guy who was a 100% expert

http://discussion.fool.com/googs-numbers-help-correct-way-to-vie…

this will eventually makes your eyes cross, but suffice it to say after all this I didn’t worry a whole lot about the issue anymore (because GAAP accounting does a good enough job capturing the cost) - other than noting that when a company that reports adjusted EPS uses restricted comp stock as the primary adjustment, they are BS-ing you. But whether that means the stock goes up or not is entirely different issue, especially since the issues of shares like this also increases cash flow.

Course, there is a trend of companies lately who are jettisoning making the joke that stock based compensation is not compensation, but not everybody gets the memo.

#5

Course, there is a trend of companies lately who are jettisoning making the joke that stock based compensation is not compensation, but not everybody gets the memo.

Of course “stock based compensation IS compensation” but what people don’t get is that it isn’t the company that is doing the compensating – it’s the shareholders! Shareholders are giving employees a part of their belongings, a part of their company. This is why charging the company books is wrong. It’s a deal between shareholders.

Suppose I gave you half my house, would the value of the house change? What changes is the value of my portion of the house.

Accounting for stock based compensation is a bad accounting practice.

Denny Schlesinger

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#6

Hi Oneeye,

for all companies, you can look up the share count note in the Q or K and see how many shares are anti-dilutive and at what prices. If you really want some fun, you can see how the count will change based on a rising price, but I’ve never found anything that concluding a company is ‘abusive’ or not to be a great use of time…

So if I am understanding you correctly, you are saying that the share compensation that a company gives out will not have anything to do with their success or the success of the investment? Could you please expound on that if you would. I am interested in hearing what you think.

Andy

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#7

are saying that the share compensation that a company gives out will not have anything to do with their success or the success of the investment?

Depends on who is getting the options. If the founder-CEO-chairman, then no. If bright-eyed bushy-tailed engineers, probably yes.

Denny Schlesinger

#8

So if I am understanding you correctly, you are saying that the share compensation that a company gives out will not have anything to do with their success or the success of the investment? Could you please expound on that if you would. I am interested in hearing what you think.

No, what I meant is that if you think a company is abusing option grants or share-based compensation*, that is a corrosive element that will bleed real live money (or, if they don’t buy shares, cause tremendous share dilution over time) over time but it is usually one factor among many. If you get other things - like happy earnings, or happy sales growth, or a dominant market position, then ultimately these abusive practices can be overcome. Look no further than LinkedIn

https://s21.q4cdn.com/738564050/files/doc_financials/annual/…

whose stock compensation was off the charts but it still got taken out by MSFT. This is also complicated by the fact that you expense stock based comp but the cash flow statement is not impacted cause you are just giving away paper, so you can have crummy GAAP earnings but plentiful cash flow. If you look at sell-side reports, they are all over the map in how to value a company in the various measures they weight.

For me alone, what I’ve found is that share based comp is a decent indicator of how management feels about its shareholders. It tends to make me think less of a company and trust them less (though to be fair, you usually see greater use of share based comp the younger a company is - often as they mature they also stop acting like Santa Claus each year - many do). But what I was trying to say in the previous post is you can tie yourself up on knots trying to figure out the potential cost of the dilution and all that - which is great - but just remember this is one thing among many, esp. cause a company can also get religion and stop with the share giveaways.

Here is my simple advice - if a company reports GAAP and Non-GAAP, then be sure to check out the reconciliation note. If the difference is entirely due to share based comp, they are BS-ing you if they emphasize Non-GAAP. File that observation away. In my spreadsheet, I track GAAP for most part but also use the cash flow numbers to give myself two pictures.

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hope that helps - if not, Buffett talks a whole lot about shareholder comp in the BH annuals

*look at how many RSUs + Options they are giving out per year vs. the Diluted Count each year to get a feel; 1% is ok, 2% is problematic; 3% is abusive; 4% is robbery; 5% is insane (there are companies that do this); OR, look at the buyback for the year in the cash flow statement and see if the share count went up; if it did, the buyback is money into the toilet for the shareholder; companies that consider themselves ‘technology’ tend to be the worst offenders in my experience…

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#9

Buybacks often are just a coverup for option abuse.

At the end of the day what counts is how you make out as an investor. They can abuse all they want if I get a 20% return. LOL

Denny Schlesinger

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#10

Thanks OneEye, I appreciate it.

Andy

#11

there are plenty of ways to way over pay employees

https://www.bloomberg.com/news/articles/2017-02-13/one-reaso…

Waymo Early staffers had an unusual compensation system that awarded supersized payouts based on the project’s value. By late 2015, the numbers were so big that several veteran members didn’t need the job security anymore

For small companies after the IPO management greed often leads to rampant option abuse. There “ought to be a law” but there apparently isn’t. Tough tax treatment of companies granting options and even tougher ones for recipients would help. Option grants y don’t expose employees to the risk of shareholders. If the stock refuses to reach exercise levels they just issue more. Sometimes post dating them as Apple did. But no one went to jail or as far as I know paid fines with their own money.

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