SBC is a hot-button issue in the cloud world today. Part 1 of this series covers a discussion on: overreliance on SBC as an incentive tool and SBC as a smoke-screen to “flatter” financials.
The SBC reckoning this post described two years ago is now just called Tuesday. Worth reading if you want to understand why the AI-efficiency layoffs were always coming—and why the AI framing is cover for something that was structurally inevitable.
Regardless of how you you include in the valuation, the dilution from SBC somehow it must be included (which even some Wall Street analysts didn’t). Under the same dilutive assumptions the valuation should not change.
Great article. It would be interesting to see augmented rule of 40 metrics with SBD and other adjustments added in for companies. Yours is the first industry comparison chart I have seen showing FCF before and after - shocking. I understand why companies don't when getting off the ground, but it becomes a crutch as they mature. Snowflake shocks me the most.
The SBC reckoning this post described two years ago is now just called Tuesday. Worth reading if you want to understand why the AI-efficiency layoffs were always coming—and why the AI framing is cover for something that was structurally inevitable.
Great article Janelle, thank you for sharing.
Regardless of how you you include in the valuation, the dilution from SBC somehow it must be included (which even some Wall Street analysts didn’t). Under the same dilutive assumptions the valuation should not change.
I personally think the FCF per share focus is the best way because it preserves the idea that the company produces cash (net cash increases), yet that value is not fully captured by equity holders (https://palantirbullets.substack.com/p/why-99-of-palantir-dcfs-fail).
Looking forward for your second part!
100% aligned with you and love the article! Just published Part II and gave you a shoutout! https://nextbigteng.substack.com/p/unraveling-saas-stock-based-compensation-part-2
Great article. It would be interesting to see augmented rule of 40 metrics with SBD and other adjustments added in for companies. Yours is the first industry comparison chart I have seen showing FCF before and after - shocking. I understand why companies don't when getting off the ground, but it becomes a crutch as they mature. Snowflake shocks me the most.