Following up on my stock-based compensation (SBC) post from yesterday, I did some digging into a few companies based on what Kevin Koharki shared in his interview last week. As of today, I don’t think SBC is a bad thing; it just isn’t well understood. I view it as a tool, and the impact it has on a company’s shareholders (negative or positive) is determined by how management uses the tool.

We’re moving into an era when technology companies are shifting from asset light and cash rich to capex heavy and possibly strapped for cash. The cash-generation abilities of public tech companies will be scrutinized more closely going forward. After looking at the impact that SBC and related buybacks can have on the “true” free cash flow of a company, I suspect that evaluating SBC’s impact will become an important part of how companies are valued.

I’m working on my own framework, which I’ll use going forward. It will leverage what Koharki shared and also incorporate other variables that determine the per-share economic impact of SBC on shareholders. Hopefully I’ll have something I can get feedback on within the next few days.