Funny Money in Silicon Valley
Alphinity Investment Management, March 2017
Alphabet will soon expense stock-based compensation in their non-GAAP results. A number of tech titans, including Facebook, have also broken rank from the industry. This shift could change the perception of value in many high-flying stocks in 2017 - a sharp reminder to always focus on real earnings.
2017 could be the year that stock based compensation starts being treated as a real expense, not just ‘funny money’.
Aside from Alphabet and Facebook, video game leaders Entertainment Arts and Activision Blizzard, and online travel agent Priceline have also started reporting non-GAAP earnings expensing stock-based compensation or dropping non-GAAP altogether. Some companies will resist, but we expect that this reporting trend will continue - and it should move stock prices.
What is stock-based compensation and why is it ‘funny money’? Lachlan MacGregor, Alphinity Global Portfolio Manager, provides his insights...