![]() It is not hard to believe that LinkedIn, barring this deal with Microsoft, would have soon been using the more realistic version of its earnings - and, in so doing, reporting more losses. Other companies, like Amazon and Intel, also account for stock compensation as an expense. “Stock-based compensation plays an important role in how we compensate our employees, and therefore we view it as a real expense for the business,” David Wehner, Facebook’s chief financial officer, said in an earnings call.įacebook’s decision to change its practice was seen as a shot across the bow at companies like LinkedIn. In April, Facebook, which also used to steer investors to use adjusted-Ebitda earnings numbers that also excluded the cost of stock-based compensation, announced that it was changing its policy. Buffett also criticized analysts who “play their part in this charade, too, parroting the phony, compensation-ignoring ‘earnings’ figures fed them by managements.” The very name says it all: ‘compensation.’ If compensation isn’t an expense, what is it? And, if real and recurring expenses don’t belong in the calculation of earnings, where in the world do they belong?” Stock-based compensation, he said, “is the most egregious example. Buffett wrote in his annual report published this year. “It has become common for managers to tell their owners to ignore certain expense items that are all too real,” Mr. Buffett have been highly critical of the practice. ![]() LinkedIn justifies the practice by saying that stock-based compensation “is noncash in nature” and that excluding it from its earnings calculation provides “meaningful supplemental information regarding operational performance and liquidity.”īut investors like Warren E. Companies like Google, Amazon and Facebook paid out about 15 percent of operating income, or well under 10 percent of revenue. LinkedIn paid out $510 million in stock-based compensation last year over the last two years, that stock-based compensation represented a whopping 96 percent of operating income, or 16 percent of revenue, according to Mr. The company purposely strips out the cost of stock-based compensation, which has the effect of turning losses into gains. That’s because LinkedIn steers investors to focus on what’s known as its adjusted Ebitda, or non-GAAP earnings. You wouldn’t know that if you only glanced at LinkedIn’s news releases. What’s a family to do? There’s no one-size-fits-all answer, but you have options. College Savings: As the stock and bond markets wobble, 529 plans are taking a tumble.Weathering the Storm: The rout in the stock and bond markets has been especially rough on people paying for college, retirement or a new home.Discordant Views: Some investors just don’t see how the Federal Reserve can lower inflation without risking high unemployment.But much of the damage is already behind us. A Bad Year for Bonds : This has been the most devastating time for bonds since at least 1926 - and maybe in centuries.Our Coverage of the Investment World The decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future. LinkedIn’s employees are paid largely in stock, and therein lies the rub: Around the company’s new 26-story skyscraper that opened in downtown San Francisco in March, as well as the corporate headquarters in Mountain View, Calif., there have been persistent whispers about whether LinkedIn could retain its top talent as the marketplace clobbered their incomes. The rapid devaluation has posed more than just a problem for investors. The share price had hovered at $225 at the beginning of 2016 a month later it briefly got close to $100. On one grim day in early February, LinkedIn’s stock price plummeted more than 40 percent after it forecast weaker-than-expected growth for the year. That would be the company’s struggling stock price and its reliance - some might say overreliance - on stock-based compensation. Jeff Weiner, LinkedIn’s chief executive, wrote a lengthy memorandum to his employees Monday morning, ticking off a list of reasons behind the surprise decision to sell the company to Microsoft for $26.2 billion: Most important, he said, was the heft that Microsoft gives LinkedIn “to control our own destiny.”īut there may have been another reason that he left unspoken. ![]()
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