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Stock based compensation doesn't affect cash flow. It's newly issued stock granted to employees. I'm not sure when the accounting laws changed to include SBC

Stock based compensation doesn't affect cash flow. It's newly issued stock granted to employees. I'm not sure when the accounting laws changed to include SBC (probably post-financial crisis), but it's weird to include it in an income statement as if it was a cash expense. You can find articles from accounting experts arguing both ways if you are curious. e.g. http://aswathdamodaran.blogspot.com/2014/02/stock-based-employee-compensation-value.html http://aswathdamodaran.blogspot.com/2014/02/stock-based-empl...

berberous 7y ago
People disagree on this. Warren Buffet for example famously argues that SBC is a real expense even if non-cash, just like depreciation. More to the OPs point, I'm guessing Uber had FB-style RSUs that don't settle until an IPO or Change of Control. I'm not sure how this all gets accounted for, but given the recent IPO, it sounds like they booked a very large SBC charge this quarter to account for the immediate hit of all the previously issued RSUs finally being settled. Going forward, the number of RSUs that settle each quarter would therefore presumably not be nearly as large. But I'm not an accountant so the above may be wrong.
- adventured 7y ago
  > People disagree on this. Warren Buffet for example famously argues that SBC is a real expense even if non-cash, just like depreciation. There isn't much to disagree about. It's a real cost against shareholders (that's what Buffett is talking about) and it is not an expense against the business operations such that it depletes your cash or harms cash flow (the point a parent comment was making). Putting it broadly, stock compensation is primarily a hit against existing shareholder ownership. It debases their ownership of present or future profits. Uber could simultaneously produce $5 billion in positive cash flow from operations and issue $20 billion in stock every year to employees. They'd have a profitable business at the operational level and be drowning shareholders in dilution.
  - munk-a 7y ago
    > it is not an expense against the business operations Except it is, you're borrowing money from the future if your company would ever consider issuing more stock in a followup round - it also may damage your ability to court private investors, not just because you lowered your share price but because you're more likely to dilute it more in the future. The stock market is a generally viewed today as an absurd concept composed of abstract financial wizardry - but it is grounded in the concept of partial ownership in a company and the assets of that company.
ummonk 7y ago
It doesn’t affect cash flow but it does affect earnings. One time loss is fine to ignore, but one should still look at the remaining 1.3 billion loss including routine stock based compensation.
kgwgk 7y ago
Income statements show multiple non-cash expenses. There is a reason why both the income statement and the statement of cash flows exist. Stock-based compensation is included as an expense since 2004 (before it was optional to do so, so unsurprisingly companies relegated that disclosure to footnotes).
ghaff 7y ago
Not an accountant and didn't really like my accounting courses very much :-) But mostly post dot-bomb. It's one of the reasons you see a lot of RSUs at bigger companies today rather than traditional options. FAS 123(r) was the first major rule. This came about because companies basically were treating stock options like they were free money from an accounting perspective.

berberous 7y ago

People disagree on this. Warren Buffet for example famously argues that SBC is a real expense even if non-cash, just like depreciation. More to the OPs point, I'm guessing Uber had FB-style RSUs that don't settle until an IPO or Change of Control. I'm not sure how this all gets accounted for, but given the recent IPO, it sounds like they booked a very large SBC charge this quarter to account for the immediate hit of all the previously issued RSUs finally being settled. Going forward, the number of RSUs that settle each quarter would therefore presumably not be nearly as large. But I'm not an accountant so the above may be wrong.

adventured 7y ago
> People disagree on this. Warren Buffet for example famously argues that SBC is a real expense even if non-cash, just like depreciation. There isn't much to disagree about. It's a real cost against shareholders (that's what Buffett is talking about) and it is not an expense against the business operations such that it depletes your cash or harms cash flow (the point a parent comment was making). Putting it broadly, stock compensation is primarily a hit against existing shareholder ownership. It debases their ownership of present or future profits. Uber could simultaneously produce $5 billion in positive cash flow from operations and issue $20 billion in stock every year to employees. They'd have a profitable business at the operational level and be drowning shareholders in dilution.
- munk-a 7y ago
  > it is not an expense against the business operations Except it is, you're borrowing money from the future if your company would ever consider issuing more stock in a followup round - it also may damage your ability to court private investors, not just because you lowered your share price but because you're more likely to dilute it more in the future. The stock market is a generally viewed today as an absurd concept composed of abstract financial wizardry - but it is grounded in the concept of partial ownership in a company and the assets of that company.

ummonk 7y ago

It doesn’t affect cash flow but it does affect earnings. One time loss is fine to ignore, but one should still look at the remaining 1.3 billion loss including routine stock based compensation.

kgwgk 7y ago

Income statements show multiple non-cash expenses. There is a reason why both the income statement and the statement of cash flows exist. Stock-based compensation is included as an expense since 2004 (before it was optional to do so, so unsurprisingly companies relegated that disclosure to footnotes).

ghaff 7y ago

Not an accountant and didn't really like my accounting courses very much :-) But mostly post dot-bomb. It's one of the reasons you see a lot of RSUs at bigger companies today rather than traditional options. FAS 123(r) was the first major rule. This came about because companies basically were treating stock options like they were free money from an accounting perspective.