3rd post in the ‘Education’ series is special & hot: Stock-based Compensation (SBC)!

Depending on your age and propensity to consume tech, specifically social media, you might be more or less aware of Snap Inc. (SNAP) which for me is a very peculiar case, and with quite some rare symmetrical charts, though not the good types this time … .

To do well in investing, one should rather stay on the bright realistic-positive side, yet some rather not so positive cases occasionally deserve attention in order to make comparisons, get insight, for educational purposes and to avoid various pitfalls. One of my favorite mottos is actually: ‘watch the downside, the upside will take care of itself!’.

Table of contents:

📊 Stock-Based Compensation (SBC) 101

📊 Snap since IPO: Profits = SBC

📊 Skin In The Game: when there is no game (profits), nor skin in the game

📊 Stock-Based Compensation (SBC) 101 📊

The main points about Stock-Based Compensation (SBC):

👉 it pays executives & employees with stock instead of cash, hence it can be a valuable tool in attracting, motivating, retaining and incentivising employees/insiders

👉 accounting wise: it is recognized as a non-cash expense on the income statement, from there related tax benefits, hence the company gets a higher cash position and better free cash flow measures

👉 cash not leaving the company gives the company a higher solvency ratio and overall optionality with it when it comes to both strategic & operational decisions

Nonetheless, there are 2 sides to the coin just like debits and credits go:

👉 the attribute that it is a non-cash expense can be twisted that it is not a ‘real’ expense, hence not a big deal or that it does not matter much

👉 even worse, heard folks saying SBC is free cash flow because it’s not a cash expense

Maverick opinion now: CAPEX (capital spending) of software companies = SBC

• recall that many tech companies are 'capital light', no need for factories, buildings & concrete ... which is true, but context matters …

• they just replaced that with Stock Based Compensation (SBC): 'capital light' it depends for whom, and the definition: physical or non-physical … one can be ‘capital light’, yet not bringing profits for ages …

• if a manufacturing/industrial company does not deploy new CAPEX, or at a minimum allocate the maintenance CAPEX, the business model starts to suffer: just like that if tech companies stop SBC, the business model will suffer soon

• the greatest trick Silicon Valley ever pulled was convincing everyone that Stock Based Compensation (SBC) didn’t exist ... or it did not matter … but it does!

• SBC is an expense, a real one and somebody must pay for it … shareholders …

Overall, SBC is not bad per se, but forgetting or ignoring is! Especially when high, and even more so when on a recurring basis, otherwise SBC can bring many benefits.

The MEME below summarises it all: management/insiders can be very happy with SBC, it even boosts free cash flow, yet investors can be left holding the bag … .

👉 On how to treat SBC in valuation/DCF models & more, 2022 key twitter thread where I had also Aswath Damodaran from NYU answering 😉, enjoy!

📊 Snap since IPO: Profits = SBC 📊

Social media company SNAP managed 2 incredible things since going public:

👉 skyrocketed the amount of ‘sexting’ and genitals sharing that people do, a different kind of a SaaS business model, namely ‘Sexting As A Service’ (lol🙃)

👉 stock -65% since the 2017 IPO, for a -12.8% annual decline … still called compounding I guess … just that is has a negative sing in front … I guess …

👉 stock with a 89.7% current drawdown

👉 never ever made a profit in any given year with a cumulative $10.6bn loss

👉 but here is the Maverick kicker: insiders got a money printing machine for themselves via issuing stock (Stock-Based Compensation) for a cumulative $9.49bn

👉 did you notice the ‘symmetry’? $10.6bn loss with $9.49bn …

👉 Net Income (red) and Stock Based Compensation (green) mirroring each other not just in total, but basically across time also (last twelve months basis) - rarely you see such a perfect Net Income 'hedge' with SBC (lol) ... Swiss clockwork bro' … lol …

👉 a serious question: is this company run by Executives for the benefit of shareholder or the Executives themselves?

👉 I get that big 2017 net income loss via loads of stock-based compensation for executives after the IPO … years of work and all that before … but what about after?

And in case you want to see the chart also on a full quarter basis, mirror like also.

👉 Voice of the narrator (aka me):

• ‘what is our net profit projection?’

• strategic decision: ‘let’s just 'hedge' it with Stock Based Compensation (SBC) for delta neutral for the shareholders, and delta positive for us’ as a Maverick wordplay 😉

Would you like the Q1 2025 exact 10-Q disclosure? There you go:

👉 SBC $247 million, Net loss $139 million

👉 shouldn’t it be Net Income of $247$ million … with $139 million SBC?

👉 at least no ‘restructuring charges’ in 2025, unlike the $70 million in 2024

👉 despite growing revenues very very well … losses keep coming, but no problem to issue SBC for the insiders … what about profits? I don’t know, haven’t seen them …

Some extra nuances:

👉 giving credit where credit is due: Snap did increase their revenues quite nicely

👉 I do understand that SBC programs are designed ahead of time, and also that a lot of SBC was issued in 2017 at the IPO as it is quite the case in tech

👉 Nonetheless, it has been 8 years since the IPO and no profits at all … it’s not okay

A MEME from 2024 which says it all basically - consistency is key it seems lol

📊 Skin In The Game: when there is no game (profits), nor skin in the game 📊

Skin in the game is seen as a solution to the Principal–Agent problem in which shareholders (principals) hire managers (agents) to run a company … but managers may prioritize personal benefits (like bonuses or perks) over shareholder value.

So, wow is the CEO doing in terms of Snap stock? Selling, buying?

👉 $1.7 billion in selling … milking the cow like a pro’ …

👉 investing or reinvesting the milk or so? No, not a single BUY … not even for cosmetic/looks reasons … I mean why would one buy into a business that is not making any profits, nor even the outlook says so? …

Therefore, where is the skin in the game for the outlook and future of the company?

All in all, to summarise:

👉 hope you enjoyed this SBC 101, especially the study case for an overall framework on how to analyse this topic going forward

👉 the technology sector can have many high flyers, very scalable, capital light, but it can also have a bunch of stuff which do not deserve their price tag, not bringing profits ... I mean for shareholders, for insiders it can be very lucrative as we saw …

👉 I am pretty sure nobody from Snap Inc. (SNAP) will send me a gift after this post, but hey, that is what independent investment and economic research is all about: not massaging each other other sentence like it is done in most banks and funds etc

• all I did was present data/facts via charts, and then an opinion based on that

• I did not have an opinion presented as a fact, but based on nothing

• very happy to make an update on SNAP when/if they change course and start making a single yearly profit - more than happy to give credit where credit is due: additionally, when facts change, I change!

👉 quoting Nassim Taleb, Commencement Address, American University in Beirut:

'If something is nonsense, you say it and say it loud. You will be harmed a little but will be antifragile — in the long run people who need to trust you will trust you!' (Twitter post)

P.S. on the independence in investment and economic research, a central theme especially nowadays, I am working currently on a dedicated piece … stay tuned!

✍️ Why Independent Investment and Economic Research = Paramount Nowadays!

Research is NOT behind a paywall and NO pesky ads here unlike most other places!

Did you enjoy this quick update by finding it interesting, saving you time & getting valuable insights? What would be appreciated?

Just sharing this around with like-minded people, and hitting the 🔄 & ❤️ buttons! That’ll definitely support bringing in more & more independent investment research: from a single individual … not a corporate, bank, fund, click-baity media or so … !

Like this, the big positive externalities become the name of the game! Thank you!

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Have a great day! And never forget, keep compounding: family, friends, hobbies, community, work, independence, capital, knowledge, research and mindset!

Mav 👋 🤝

P.S. in case you missed my previous 2 Educational pieces, there you go:

📖 Fiat Currency - VS - Cryptocurrency, Centralised - VS - Decentralised

📖 Yale courses I did and highly recommend - Education, a new section inside Maverick Equity Research

today a 2nd Educational type of post, a new section within Maverick Equity Research!

I was asked for educational resources sounding like: ‘how could one get his or her head around and have a solid ground on the Fiat Currency versus Cryptocurrency development?’. Naturally, blockchain is part of the package behind the cryptocurrency technology.

Report structure and table of contents as a logical and smooth preview:

📊 My blockchain in banking real-world experience and use case

📊 Educational resources for a solid expertise

📊 My blockchain in banking real-world experience and use case

On the blockchain technology and use cases, I’ve been professionally involved with and worked from the banking side on this blockchain based solution for trade finance in banking. Specifically, the ‘Batavia’ project was a consortium of banks together with IBM designed as a platform to track good and release payments as they move around the world in a very paper-heavy business.

Trade finance as a banking financial service involves a big number of document exchanges between a large number of entities, such as exporters and importers, banks, insurers, transportation and logistics companies, and government authorities.

Given the novelty, reach and goal, the project was featured in the Financial Times:

Financial Times: Banks team up with IBM in trade finance blockchain

3 more key resources:

CaixaBank: First pilot client transactions successfully executed on Batavia global trade finance platform

Global Trade Review: we.trade & Batavia merge blockchain platforms for trade finance

Commerzbank: Blockchain-based Trade Finance Platform Batavia

Overall, my short opinion on the topic overall is simple:

• fiat currency is definitely here to stay

• on crypto I am 50/50 for now

• blockchain technology positive and real uses case are feasible, but more is needed until the efficiency, governance & big use cases are making tangible contributions

📊 Educational resources for a solid expertise

Education and immersion are the only way to have a comprehensive take on any topic. On this hot topic, the key words as preview are:

• the economics and history of money & banking

• the blockchain revolution and its use cases

• the digital transformation of financial services and

• fintech (financial technology) companies with its applications & use cases

Specifically, the serious educational path I did, and that I recommend is like last time, my top online educational platform, Coursera! On top of using it for my professional development for many years, I did also partner and am an affiliate since this year.

So, 4 big educational endeavors via 4 different great universities / business schools:

1. Economics of Money and Banking, Columbia University

• I would definitely internalise the "The Natural Hierarchy of Money" framework, which is also a kind of high-level overview of the entire course and is part of the introduction module, so don't expect to fully understand it until you look back after completing the rest of the course. Nevertheless, it provides essential orientation for what comes after which acts as an essential roadmap

• you can get it done + certificate in about 30-35 hours - if you do not have formal banking/economics education, training, experience this will be a bit difficult, but difficult is what makes you stand out … headlines, various ramblings, executive summaries everybody can read and talk about (some say, all can ‘parrot’ them)

2. Blockchain Revolution, a specialization via 4 courses from INSEAD

Learn the fundamentals of blockchain technology:

• Seven design principles for the ‘Blockchain Revolution’

• Terms such as miner, hash, nonce, consensus mechanism, public key cryptography, cryptoasset, smart contract, DApp, and self-sovereign identity

• Top 10 challenges for implementing blockchain technology

• Blockchain use-cases within your industry, and business model decisions to assess feasibility

The key of this specialisation is the last course, Blockchain Opportunity Analysis. It is essentially the applied study case where you identify new ideas or opportunities for blockchain within your chosen industry, and where you make it happen by bringing your idea to fruition

You can get it done + certificate in about 80-100 hours, quite a workload but worth it!

3. Digital Transformation in Financial Services, a specialisation via 4 courses from the Copenhagen Business School

• the Specialization explores the evolving world of finance, focusing on the changing dynamics caused by the conversion of products and services into digital goods, new customer demands and changing regulation to govern the competitive landscape - the overall digital transformation of finance

• throughout the course, the instructors will use state of art examples and share their own research from the European and North American finance industries, as well as expose practices from leading digital financial services and companies, such as MobilePay, Saxo Bank and PayPal

The key is the last course, the Applied Learning Project / Capstone project. You will will use the acquired knowledge to analyse problems and propose actions in real world situations. In the capstone project, the learners will be asked to develop a digital transformation strategy for a real-world financial service company.

You can get it done + certificate in about 40-50 hours, quite a workload but worth it!

4. Fintech: Foundations & Applications of Financial Technology, a specialisation via 4 courses from Wharton Business School

• designed to introduce you to the fundamental building blocks of financial technologies and real-world applications through case studies of Wharton-led companies in the field. You'll learn the the essential components of technology-driven financial strategies, from complex regulations to cryptocurrency to portfolio optimization.

• you'll also learn how modern investment strategies deploy technology to produce optimal results, explore the disruptive force of changing payment methods, analyze the changing regulatory landscape, and gain a deeper understanding of robo-advising, crowdfunding, peer-to-peer lending, and blockchain

You can get it done + certificate in just 15-20 hours, definitely worth it!

Below you can find the verified certificates I got as a sense how yours would look like. Like last time, I did scribble my name in blue, and for why I prefer to be anonymous you can read more in the ‘About’ section … and yes, I do have a long name 😉:

From 2019: Blockchain Revolution, a specialization via 4 courses from INSEAD

From 2019 - Fintech: Foundations & Applications of Financial Technology, a specialisation via 4 courses from Wharton Business School

From 2019: Digital Transformation in Financial Services, a specialisation via 4 courses from the Copenhagen Business School

From 2014: Economics of Money and Banking, Columbia University

Many Coursera courses and lectures are free, while for the full experience, meaning quizzes, assignments, exams and certificates, fees are by individual course ($29 – $99 range), specialisation (US$39-79 per month) or degree (varies by institution, length etc).

A popular learning package is via Coursera Plus where one has unlimited access to 7,000+ world-class courses, hands-on projects, and job-ready certificate programs - all included in the yearly subscription:

• for 399/year with 14-day money-back guarantee

• the monthly version is $59/month and starts with a 7-day free trial

📖 N.B.! as I did partner and I am a Coursera affiliate, you can get $100 off, hence the 1-year for just 299$ which is valid until April 1). That means unlimited access to learning programs from top companies and universities including Google, Microsoft, Meta, Yale and more for less than $1/day. Enjoy!

Hope you found this interesting and useful. The lifelong learning and professional development is on ! It’s yours to embark on! Enjoy!

There is NO paywall here and NO pesky ads here unlike most other places! What would be highly appreciated from your side? Just sharing it around (restack, email, forward, re-tweet) with like-minded people and hitting the ❤️ button.

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Your support will also make possible more & more independent investment research: from a single individual … not a fund, bank, or click-baity media company or so … !

Thank you! Have a great week!

Mav 👋 🤝

2024 comes with a new section within Maverick Equity Research, namely Education.

It will be a place where I will cover it inside-out, meaning:

• external - great learning resources I undertook like courses, books and research

• internal - my own ‘teachings’ from my real world practical experience & mistakes: food for thought, subjects that are thought provoking, clarifying confusions and myths about investing, finance and economics … opening new perspectives …

Do I know it all? For sure not. Will I ever know it all? For sure not! Is there anybody that does? For sure not, though quite some would act as if, pay them no mind, clowns!

In general, we should all strive to learn and see ourselves as students of life, there is always something, somebody to learn from, hence I truly believe in lifelong learning for personal and professional development. Then when we form a view about a topic, debate with people with the idea to have a constructive and honest debate where the ultimate goal is to find the most likely scenario or the actual truth. At some point you will see, time will simply discover it and it will simply show up apparently from nowhere, dots will get connected and insights will be won.

Education is key, it’s what nobody can take away from you. Over the long run, it produces one of the best compounding results that you can think of. Job titles, corporate positions, career tracks are with ups & downs, sometimes taken away just via bad luck or office politics, but your knowledge & skills are always there for you.

We have no shortage of learning and development resources nowadays: people and their experiences, our working environment and communities, books, the internet = ‘the great equaliser’ where one can dive into any topic and get many ‘A-ha’ moments, develop, meet great people and even create joint-ventures or own businesses.

Before anything, 2 of my favourite quotes on education by 2 of the greatest out there:

Charlie Munger:

“Spend each day trying to be a little wiser than you were when you woke up.”

“In my whole life, I have known no wise people who didn’t read all the time.”

“The best thing a human being can do is to help another human being know more.”

Warren Buffett:

“If you are investing in your education and you are learning, you should do that as early as you possibly can, because then it will have time to compound over the longest period. And that the things you do learn and invest in should be knowledge that is cumulative, so that the knowledge builds on itself. So instead of learning something that might become obsolete tomorrow, like some particular type of software [that no one even uses two years later], choose things that will make you smarter in 10 or 20 years.”,

“The best investment you can make, is an investment in yourself. The more you learn, the more you'll earn”. “It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.”

“I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions than most people in business."

So, let’s start with my top online educational platform that I have been using for years, Coursera! I talked with plenty of professionals across the years and they did not know about Coursera, while they were all impressed once they checked it and saw what a privilege is that today we can get world-class education via just 1-click!

Coursera envisions a world where anyone, anywhere can transform their life by accessing the world’s best learning experience. More than 80 million learners use Coursera to take courses offered by top universities like Yale, Stanford, and Duke and top companies like Google, Microsoft, and Facebook.

Founded in 2012 by Stanford University computer science professors Andrew Ng and Daphne Koller, Coursera works with universities and corporations to offer online courses, certifications, and degrees in a big variety of subjects … .

I did more than 30 courses and 4 specialisations via Coursera across time, and nowadays great to affiliate with such a great educational platform, check it out!

My latest 2 courses from Yale University were on my list for a while and in between Christmas and after New Years Eve I was glad to find the time and peace to complete.

1. Narrative Economics, from the one and only Nobel prize winner, Robert Shiller!

I am a big fan of Professor Shiller, one of a kind with a unique way to distill complex topics and explain them to a wide audience that will gain very valuable insights!

• short course, you will get it done + a certificate with your name in 5-7 hours, and this was definitely the course with my highest ever insight/time ratio

• Narrative Economics is a new field which focuses on the human side of Economics: how stories go viral, how narratives spread and become part of the public consciousness, hence drive social and economic behaviour

• Professor Shiller, proposes studying these narratives — stories — as the most important thing we can do now to improve economic forecasts, inform major economic decisions and understand economic events

Complementary, 2 short videos as intro to the course from Professor Shiller himself:

Complementary, a 8 minute YouTube video on the Narrative Economics field itself which explains a lot via the role of narratives both the 1930s Great Depression and the 2007-2009 Great Financial Crisis. Naturally, the video is also a great preview what you will find inside the course per se …

If my short review and Professor Shiller’s previews convinced you, I personally highly recommend you take the course, you will not regret it! Narrative Economics will not just contribute to your investing journey, but also to your understanding of the day by day social and economical behaviour that shape the societies we live in.

After, it would be great of us debating and debunking both the narratives we saw in the past (even laugh about ourselves how could we believe this or that) and nowadays. I have seen many in the past & see plenty nowadays, and you will too once you are very aware how much is substance & how much is more like a story, a narrative that many pile into, and ultimately, when, how and why people and investors change their mind.

And this is how a sample verified course certificate looks like should you pursue it!

While my personal verified certificate for this specific great Narrative Economics course which I did complete just recently in December 2023 looks like this (scribbled my name, for why I prefer to be anonymous you can read more in the ‘About’ section):

2. Financial Markets, from Yale’s professor Shiller as well!

• this course is about 30-40 hours, and though said to be as a Beginner level, even experienced folks will benefit a lot … conceptually there was nothing new for me, but there is something about Shiller’s teaching that makes me connect many dots

• Professor Shiller course intro says it quite all:

‘Finance is not about making money, or in some sense it is, but I do not see it that way! We all have our purposes, it’s part of human nature to settle on some goal or idea for us, usually that isn’t making money, making things happen is what I think finance ought to be about!’

Verified course certificate completed just recently in January 2024. Note, this course has a ‘With Honors’ distinction which you get when you complete honors assignments.

3. The Global Financial Crisis, also from Yale and this time offered via both the academia and professional side: professor Andrew Metrick & Timothy Geithner, former Secretary of the Treasury that served from Jan 26, 2009 to Jan 25, 2013 as he took office in the midst of the worst financial crisis since the Great Depression.

• this course is about 60-70 hours and definitely one of the best coverages on the 2007-2009 subprime mortgage crisis which caused the biggest recession since the Great Depression from the 1930s

• topic was also the subject of my 2009 university thesis, hence I was very curious for some extra reflections & insights that clearly did further connect my key dots

Complementary, intro to the course from Mr. Metrick and Mr. Geithner:

• the course was done 8 years ago, yet the great thing about it is that it keeps getting updated, the latest being in 2023 with the 2nd largest bank failure in the history of the US - the case of the Silicon Valley Bank (SVB) and its resolution

Verified course certificate completed many years ago, namely 2018.

Fun fact: as I did many courses and got all the correspondent certificates, in the vast majority of cases they were a big advantage at job interviews. However, I have to note one where it was a big disadvantage: the manager actually bashed them … instead of discussing the content, the job, my experience, the courses per se he got stuck on my lifelong educational and professional development which was puzzling … at first … .

I never got the job and glad I didn’t: later I found the ‘hot shot’ was just a talking head which got kicked out shortly after. Nobody knows how he got there in the first place. Well, it is known, it’s by mastering the office politics aka ‘the art of bullshit’ and basically he felt emasculated/intimidated by people that do study, make progress, do their best and … know at least something. Don’t get discouraged if that ever happens to you, you do not want to be surrounded by a manager & colleagues like that, you will with time become the same most probably … with whom you spend 8-10 hours a day each day it is impossible not to have an influence (both good or bad) on you in time, and that is no matter how much of a ‘Maverick’ you are or not … .

Sometimes you have to take the loss on the short term (quit/not get a job, lose money, leave some old friends behind etc) so that you are not dragged down, and hence can thrive on the medium-long term. This is valid unless you are very lucky and never have this situation, but on a bound of probabilities, you will, so be prepared!

Keep making progress, we tend to overestimate what we can do in 1 year, and underestimate what we can do in 5-10 … knowledge compounds! Do it!

Hope you found this interesting and useful. Next time I will tell you more about both other various courses I did complete, and that I am currently studying via Coursera! The lifelong learning and professional development is on ! It’s yours to embark on!

Many courses and lectures are free, while for the full experience, meaning quizzes, assignments, exams and certificates, fees are by individual course ($29 – $99 range), specialisation (US$39-79 per month) or degree (varies by institution, length etc).

A popular learning package is via Coursera Plus where one has unlimited access to 7,000+ world-class courses, hands-on projects, and job-ready certificate programs - all included in the yearly subscription:

• for 399/year with 14-day money-back guarantee

• the monthly version is $59/month and starts with a 7-day free trial

Have a great weekend!

Mav 👋 🤝