Harrison

The Mineral Resources $MIN story is remarkable on all fronts, not least its shareholder returns - 28% CAGR since IPO in 2005.  @fraser_cc does a beautiful job at sharing the unique lessons from TDM's 19 years of ownership.

The data behind Stock-Based Compensation (SBC) dilution: what it means for growth companies. How does SBC issuance affect stock price? Is there a link between growth and higher SBC-based dilution? Are there new ‘norms’ for the types SBC issuance? Until now, there has been a lack of data to confirm many of the long-held market heuristics on stock-based compensation and dilution. In our search to form an evidence-based view on the implications and through-the-cycle trends, we aggregated thousands of lines of data on stock-based compensation from 117 public growth technology companies over the last eight years. How much does the SBC decision matter to valuation? As long-term investors, we have always been very focused on the valuation implications of SBC decision making, and rightly so. A simple example: a company diluting its share count by 4% p.a. compared to a company diluting its share count at 2% p.a. over a 20-year period has a ~20% lower valuation on a per-share basis. Potentially, the impact could be much higher if you assume dilution continues in perpetuity. Read on for a very brief summary of some key findings from our analysis. Full dissection of findings and data pack is available on our blog > tdmgrowthpartners.com/insigh… +++ The analysis: Led by Tim Le and Ben Gisz, we focused on one key metric - Net Dilution. We define this as Net RSU and Options issued, divided by weighted average shares outstanding. +++ How much SBC are public technology companies issuing? The median level of Net Dilution, over the eight years which we collected data, was 2.0% p.a. In 2022, however, median issuance spiked to 3.0%. This spike is most likely caused by the significant fall in technology company valuations and the need to issue more equity to maintain remuneration on a dollar basis. The top quartile (highest dilution companies) seeing Net Dilution rise to 4.9% in 2022. (Granular snapshot of all the companies below) +++ What can we learn about the stock price performance of ‘high’ SBC issuers and ‘low’ SBC issuers? From 2018 to 2022, the data suggests an inverse correlation between a company level of SBC-based net dilution and its medium-term stock price performance. Companies with the lowest Net Dilution (<2% p.a.) recorded median stock price performance of +16.9% p.a. In contrast, those companies with the highest Net Dilution (>3% p.a.) recorded median stock price performance of negative 0.9% p.a. The BIG insight: Growth technology companies that dilute greater than 3% p.a. from SBC on a net basis, are EXTREMELY UNLIKELY to outperform the market. (Related data in charts 1 and 2) +++ What can we learn from issuance of RSUs vs Options? We have seen a distinctive trend away from options in favour of RSUs. In fact, only one company in our data set granted zero RSUs over the past eight years – Netflix! For deeper analysis on the type of equity grants issued, we split the data into two cohorts based on their average SBC-based dilution over the last 3-5 years: less than and greater than 2% p.a. dilution. We found the cohort that diluted less than 2% p.a. had a much higher proportion of equity plans with a ‘mix of options & RSUs’, suggesting that there are potential advantages of including options in a company’s equity policy as it relates to dilution. (Related data in chart 3) +++ Where to from here – the TDM view: We fundamentally believe in the power of SBC, when used in the right way. We would love to see public growth technology businesses gravitate towards some key principles: • Limit SBC Net Dilution to 3% p.a. In an ideal world it is 2% p.a. or lower • Retain some use of options or performance based RSUs rather than exclusively using time-based RSUs • Provide medium-term guidance on the level of net dilution

What's the key investing lesson from @HarrisonMoot’s recent breakdown of $SQ (Block) on @EquityMates? #Vitality can be a company’s greatest lever for growth. 🧵/5

Now on @equitymates podcast🎧: @HarrisonMoot gives a wonderful 101 breakdown of $SQ (Block) feat. the metrics we measure closely and the future outlook for a business that is increasingly complex to follow. open.spotify.com/episode/6I3…