Your Favorite Tech Company Might Be Paying Employees With Your Ownership
Stock-based compensation is the single largest expense most investors never scrutinize. Here's how to measure it the way a business owner would — and why the numbers change everything.
The expense everyone agrees to ignore
When a company pays an employee $200,000 in cash, nobody debates whether that's an expense. But when a company pays the same employee $200,000 in stock, an entire industry of analysts, earnings calls, and screeners agrees to pretend it doesn't count.
The mechanism is simple: companies report “adjusted” or “non-GAAP” earnings that add stock-based compensation (SBC) back to profit, as if it were a one-time charge rather than the ongoing cost of running the business. Wall Street obliges by anchoring on these adjusted numbers. The result is that the single largest expense at many tech companies — often larger than R&D or sales and marketing — vanishes from the headline figures investors use to make decisions.
Warren Buffett put it plainly in his 2015 shareholder letter: “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?”
Two ratios every owner should calculate
Most screeners show SBC as a single line in the cash flow statement, if they show it at all. That's not enough. To understand how much of a company's productivity flows to employees rather than to you as an owner, you need to measure SBC against two things:
What share of the company's total output is being paid to employees via equity? This tells you how expensive the workforce is relative to the business's scale. Track it over multiple years — if it grows faster than revenue, the company is structurally getting more expensive to run.
How much of the cash flow investors celebrate is being silently paid out as dilution? A company can report strong “free cash flow” while handing out more in stock than it generates in cash. This ratio exposes that gap.
Let's apply these ratios to real companies and see what the numbers actually say.
The SBC scoreboard: 8 companies, side by side
All figures are from the most recent fiscal year SEC filings. Revenue and SBC from the income statement; operating cash flow from the cash flow statement.
| Company | Revenue | SBC | Op. Cash Flow | SBC / Rev | SBC / OCF |
|---|---|---|---|---|---|
| Snowflake | $4.68B | $1.60B | $1.22B | 34.2% | 131% |
| Roblox | $4.89B | $1.13B | $1.80B | 23.1% | 62.8% |
| Palantir | $4.48B | $684M | $2.13B | 15.3% | 32.1% |
| Airbnb | $12.2B | $1.59B | $4.65B | 13.0% | 34.2% |
| Meta | $201B | $20.4B | $115.8B | 10.2% | 17.6% |
| Salesforce | $41.5B | $3.51B | $15.0B | 8.5% | 23.4% |
| Uber | $52.0B | $1.83B | $10.1B | 3.5% | 18.1% |
| Shopify | $11.6B | $449M | $2.03B | 3.9% | 22.1% |
Sources: SEC filings via StockAnalysis.com. Snowflake and Salesforce fiscal years end January 2026; all others calendar year 2025.
Case study: Snowflake pays more in stock than it earns in cash
In its fiscal 2026 10-K filing (ending January 2026), Snowflake reported $4.68 billion in revenue and $1.22 billion in operating cash flow. That looks like a maturing cloud business generating real cash.
But the same filing shows $1.60 billion in stock-based compensation. That's 131% of operating cash flow. For every dollar of cash the business generates from operations, it hands out $1.31 in equity to employees. The company is paying its workforce more in stock than its entire business earns in cash.
Snowflake swings from a $1.44 billion GAAP loss to a modest $160 million non-GAAP profit almost entirely by adding back SBC. The headline number in every earnings release is the adjusted profit. The real number — the one that includes the cost of paying your employees — is a $1.4 billion loss.
The dilution tax: what SBC actually costs you
SBC isn't an accounting abstraction. Every dollar of SBC creates new shares that dilute your ownership. If a company's share count grows 7% per year, you need 7% earnings growth just to stay flat on a per-share basis. SBC is a silent tax on returns.
Here's how much actual dilution selected companies have imposed on shareholders over the past four years, measured by growth in diluted shares outstanding:
If you bought Roblox or Palantir at IPO and held, roughly a third of your ownership has been transferred to employees through dilution — before you even look at the stock price.
Meta is the counter-example: it spends $20.4 billion on SBC but uses aggressive buybacks to shrink the share count by ~2.6% per year, more than offsetting dilution. The SBC is still a real cost — the buyback cash could have been returned to shareholders directly — but at least ownership isn't eroding.
The non-GAAP trick: how $1.4 billion in losses become a “profit”
Terry Smith, founder of Fundsmith, highlighted this pattern in his 2022 annual letter. He showed that Intuit's GAAP earnings per share guidance for FY2023 was $6.92–$7.22, while its non-GAAP guidance was $13.59–$13.89 — nearly double. The gap was almost entirely SBC being added back.
The consequence: analysts using non-GAAP numbers saw Intuit trading at roughly 28× earnings, comparable to Microsoft. On GAAP numbers, the real P/E was closer to 43× — a 72% premium that wasn't apparent from the standard screener view. Smith's conclusion: SBC adjustments “can completely distort comparisons with other company's figures.”
Charlie Munger was less diplomatic. He called adjusted EBITDA — which typically excludes SBC — “bulls--t earnings,” and said of people who use these metrics: “They're somewhere between crazy and crooked.”
Where to find SBC in a 10-K — and what to look for
Under ASC 718, companies are required to disclose a functional breakdown of SBC in their 10-K footnotes — showing how much goes to cost of revenue, R&D, sales and marketing, and G&A. This distribution matters far more than the total.
SBC concentrated in R&D signals investment in future product — the company is using equity to attract engineers who build what it will sell in three years. SBC concentrated in sales signals the opposite — equity is subsidizing customer acquisition costs, which means true unit economics are worse than they appear.
This functional breakdown is in every 10-K, usually in a note titled “Stockholders' Equity” or “Share-Based Compensation.” No screener surfaces it. But it's the difference between knowing how much a company spends on SBC and understanding why.
The owner's SBC checklist
Why this matters for how we built DeepFundamental
Most financial tools show you SBC as a single number stripped from its context. They don't show the functional breakdown. They don't make it easy to compare SBC against revenue or cash flow across companies. And they anchor on the non-GAAP numbers that exclude SBC entirely.
DeepFundamental parses SEC filings directly and preserves the company's own reporting structure — including the SBC detail that matters most. When you look at an income statement on DeepFundamental, you see what the company actually filed, not a simplified version that hides where the money goes.
See what SBC really looks like in a filing
Pull up Palantir's income statement and see the functional SBC breakdown that screeners leave out.
Sources
- Warren Buffett — 2015 Berkshire Hathaway Annual Shareholder Letter
- Terry Smith — Fundsmith Annual Letter to Shareholders 2022
- TIKR — "How to Analyze a Public Company's Stock-Based Compensation"
- PwC — ASC 718 Stock Compensation Disclosure Requirements
- Snowflake Inc. 10-K Annual Report — Fiscal Year Ended January 31, 2026
- Palantir Technologies 10-K Annual Report — Fiscal Year Ended December 31, 2025
- StockAnalysis.com — Financial data sourced from SEC EDGAR filings