Irnest Kaplan, CFA on Clouded Judgement

Thanks for the feedback James I agree that excessive SBC is not good. My comments in my two posts above are referring to the high growth next Generation companies, not the giants. I am referring to the companies in Jamin Ball's cloud software analysis, not the giants like Google and Microsoft. Google, Microsoft and Apple have SBC/Rev of 6%, 4% and 3% respectively (Last twelve months). This is not as much of a problem as with the higher growth smaller software companies such as Zscaler, Snowflake and SentinelOne for example. Those sorts of companies have SBC/Rev in the 20-30% range and higher. Their FCF margins after deducting SBC are often negative. And their share counts are rising fast. I agree with you that in the case of Google, MSFT and Apple, they could pay their employees less Stock Based Comp and they have the advantage of their employees wanting to work there, so many wouldn't leave. And they have mountains of cash to compensate (even partially) with cash. But those aren't the companies I am referring to, neither is Jamin Ball in his analysis. I am referring to these higher growth smaller next gen companies. I don't know how it got to this point, perhaps a remnant of earlier days with "sweat equity" when they didn't have the cash. Those companies depend more heavily on top talent because they have an order of magnitude smaller staff count. Let's see how it evolves. I'd like to see the Stock Based Comp reduce over time. In any event, they are growing fast so the counter argument is that the winners in this higher growth cohort will still provide good investment returns over the coming 5 years, despite the high use of stock based comp. The losers (probably most of them) will likely end up in big losses for shareholders. I am not making excuses for the giants - but in the case of the smaller high growth companies, was just pointing out that if they're all doing it, how does it get resolved? Do regulators have to step in to limit the use of SBC?