SBC
SBC Medical Group Holdings Incorporated Common Stock
stock NASDAQ

1. SBC awared to employees diluting shareholders
2. The diluted amount is "neutralized" with buybacks
That is cash directly going to stock awards. Hence "cash goes to SBC".
You see it in every other SaaS company.

But if earnings are overstated, that means expenses have to be understated. SBC has no impact on Cash Flow, and it’s definitely an expense that would impact earnings. The article doesn’t really identify the loosely defined GAAP interpretation, and then mentions an adjusted EBITDA, a non-GAAP measure. And dilution impacts are reflected in the EPS footnote disclosure. So what’s the overstatement?

This was really helpful. How do you know the SBC is a one time event, and not recurring?

So that market is already saturated. And yet they are also not GAAP profitable. All cash goes to SBC.

>Yet the dude is talking about how GAAP accounting for SBC is obfuscation its cost and is being treated as essentislly "free compensation", and his claim is "that shit aint free" and if you factor in the value it diverts from investors its about 20% of earnings.
Warren Buffett has been crying about this for a long time.

Why the obsession with price to sales? Obviously revenue needs to grow, but at the end of the day, this is about making money... is it not? Price to free cash flow is the only metric that matters once EBITDA earnings cross the rubicon. If they grow into the P/E as they've demonstrated the last 3 years, who cares what the price to sales is? That tells me they make significantly more profit on less revenue than any software company by far. And you see that as a negative? The market sees it as a reason to re-rate in an entirely different stratosphere than any perceived peer. Every company you've named as a peer, LOSES money when SBC is accounted for.

"Burry writes that Tesla's use of SBC was so significant, the GAAP overstatement was reduced from about 20% to 12.5% simply by removing Tesla from his analysis."
If this is true, and you can somehow predict when the market will correct for this, it will be the largest wealth gain opportunity in the last 5 years.

To be fair. Institutional investors account for this. I spent a lot of time adjusting earnings reports for SBC in my prior life.

To both this post and your response to u/eisbock \- not really, no. I'll address the points in this post first and then the points in your other one.
>Every professional investor who sets the market for these stocks understands the dilution, economics, and adjusts price accordingly
This is patently untrue. Not all professional investors are created equal - they have different skillsets and specialties. They're not identical machines that have access to the same amount of computing power and a massive repository of the same information, they're not omniscient market gods, and they're not vastly more intelligent than everyone else. They're mostly just people who are able to play in financial markets because they have enough money. Some really know their shit when it comes to the areas they invest in, others are simply playing at the casino because they can.
The impact of the myriad interactions between different components of financial statements in different market conditions is a wildly complex science all on its own, and it's not even close to being the only component of valuation. The vast majority of participants are not PhDs with an extremely deep academic understanding of even a single part of what goes into valuation, and not a single person on this planet understands every part to that degree.
>Share-based comp doesn’t let you “cash out early”, in fact it has a vesting period. Most people sell the shares immediately when they vest, which is a different story
This doesn't sound right to me, but I can't find any studies on when people generally cash out of their stock-based comp, so I can't definitively say it's incorrect. There are plenty of financial incentives to hold stock-based comp, and private stock is far less efficiently priced than public stock, so I doubt that this is as universal of a practice as you make it sound.
On top of that, the "cashing out before bad news becomes public" point generally only applies to people who are privy to that information, which would be executives and C-suite rather than run-of-the-mill employees, and they most definitely do not immediately cash out as soon as they receive SBC.
>The market is inefficient estimating forward growth and discounting future cash flow or earnings. The market IS efficient modeling relatively simple accounting mechanics like share based comp.
1. Efficiency is a matter of degree and proportion. The market is *less* efficient at estimating forward growth and future CFs & earnings, but just because it's more efficient at modeling simpler mechanics doesn't mean that it's properly pricing in *all* of those simpler mechanics *all* of the time. There are a trillion moving pieces, all constantly shifting in relation to one another, and the market's ability to value them "perfectly" is constantly in flux because, for less important pieces, "good enough" truly is good enough.
2. Market efficiency is achieved over the long term, and short-term inefficiencies can persist for a *long* time for a variety of reasons. An inefficiency might not be a significant enough portion of the market to garner the attention of enough market participants to set it right (i.e. the money just isn't there at the moment), or persistent market exuberance may even reward market participants for inaccurately pricing something. That was one of the main factors in the 07-08 bubble that Burry made a killing off of - ratings agencies, big banks, and lenders were all being actively rewarded for turning a blind eye to the existence of the time bomb that they were all building.
Stock-based comp has grown massively in the last twenty years. Our previous valuation methods might have been sufficient when it was a smaller piece of the puzzle because a higher level of analysis wasn't necessary for something less significant - if something is only .4% of the balance sheet, pricing it perfectly isn't an efficient use of time or resources when there are far bigger pieces to analyze. However, [if it grows to become a much bigger piece](https://www.equitymethods.com/articles/how-investors-analyze-sbc-and-why-it-matters-for-finance-leaders/) (say, **a 5x bigger piece than it was 20 years ago**), that is when our previous valuation methods start getting stress-tested. Maybe it's not bad enough yet and it grows to 10x what it was before the dam breaks, but if Burry is right, it will break eventually.

Lots of SBC and only low double-digit top line growth, much lower than other SaaS companies. Yes, its arguably more defensible but however you slice it the valuation multiples are still pretty steep.

I am, buyback stock baba. This SBC it terrible

Every company reports with GAAP accounting and discloses their SBC in black and white.

JFC the SBC and how it impacts earnings is something anyone who follows tech with half a brain has known about for many many years now

This guy is a clown that's chasing engagement and attention

Its pretty crazy reading through the comments practically no one here has read the article.
Based on what I see you would think hes calling a bubble or AI collapse.
Yet the dude is talking about how GAAP accounting for SBC is obfuscation its cost and is being treated as essentislly "free compensation", and his claim is "that shit aint free" and if you factor in the value it diverts from investors its about 20% of earnings.
Ergo 20% of earnings reported by these companies over the last 10 years just isnt actually earnings and was consumed by SBC which is roughly 1.9T.

Have anyone even clicked in and read the article? He is criticizing SBC, and this is just the status quo fro tech stock, it may mean the baseline PE among tech stock is elevated, but everyone knows to compare among sectors for fair evaluation.

I mean, he's 100% correct in that the accounting of SBC skews the "real" earning. But this can't be news to anyone, right?

1. SBC awared to employees diluting shareholders
2. The diluted amount is "neutralized" with buybacks
That is cash directly going to stock awards. Hence "cash goes to SBC".
You see it in every other SaaS company.

But if earnings are overstated, that means expenses have to be understated. SBC has no impact on Cash Flow, and it’s definitely an expense that would impact earnings. The article doesn’t really identify the loosely defined GAAP interpretation, and then mentions an adjusted EBITDA, a non-GAAP measure. And dilution impacts are reflected in the EPS footnote disclosure. So what’s the overstatement?

This was really helpful. How do you know the SBC is a one time event, and not recurring?

So that market is already saturated. And yet they are also not GAAP profitable. All cash goes to SBC.