I don’t want to belabor this other than to clarify one point. I was specifically talking about impacts to the company, not impacts to investors. I do watch dilution as a result of SBC. But again, SBC does not cost the company anything.
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Right, but not everyone understands that no cash goes anywhere when the options are issued since GAAP requires them to be subtracted as if they were an expense. There is really zero impact on the financials of the company at the time they are issued.
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(Actually, every company does report operating cash flow, because it’s a line on the Statement of Cash Flows.)
I don’t think there’s a good metric – or even a formula including several metrics – to compare companies “apples to apples.” If that were all there was to stock picking, you’d prefer Supermicro to AppLovin, because Supermicro is growing revenue faster and has a lower GAAP PE. But you own AppLovin and not Supermicro, because you’re bringing everything else you know about the companies to bear…the things that are quantifiable and the things that aren’t.
Yes, we should. (Although in the April quarter they were actually GAAP profitable). But we shouldn’t stop there. We should ask why inventory has increased from $1.5b to $4.4b in just 4 quarters time for SMCI. We should ask why AppLovin has $3b of net debt. We should ask who’s net buying back shares and how impactful that is. All these things matter – some more than others. And there’s a lot more too.
But the main thing is, how is the company trending? Are they doing better each quarter? How much better? And is that likely to continue?
Yes, some quantification needs to be done, but within a broader framework of a holistic assessment of a company’s prospects both numerical and qualitative.
So let’s not argue GAAP vs non-GAAP. Look at both and take them in context.
Bear
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To me this is the main point. Regardless of which GAAP or non-GAAP metrics you prefer, the easiest way to measure performance is comparing a firm’s actual trends against investor expectations. Those companies that meet or exceed those trends tend to go up in price. Those that don’t go down.
Not to get overly simplistic, but I’ve always viewed SBC as a loose form of Cap Ex except for talent rather than hard assets. The cost is the chance of future dilution rather than now dollars. Since it’s part of the gig, it’s just another piece of the puzzle to consider rather than something we can change.
In the end (at least for me), it always comes down to a company’s business trends. The best are those that find a way to stretch those trends out the longest.
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