SBC can be super esoteric, but a deep dive on investor usage of FCF as a % of FCF/Revenue/Market cap vs % dilution vs DCF and bonus SBC Adjusted Rule of 40 for Software
I dug into dilution and SBC about 8 mo ago as well and would love to swap notes. My main takeaway was similar in that most investors don't know how the heck to account for it and there is not a universal best practice. Incorporating into a DCF and modeling out FDSO and then backing out FCF / share seemed liked the best method and most practical but was still wild to me that something you would think every smart investor should have a good grasp on was widely misunderstood.
Can do a DCF a couple different ways, either with implied FDSO increase over time from dilution or using FCF-SBC/Share and a constant share count. Usually a good gut check on the valuation method you normally use (P/E, EV/EBITDA, EV/FCF, etc)
For closer term valuation (and how the street tends to think about it), modeling out the expected FDSO over time and the impact to EPS and EV->per share valuation depending on the company is preferred but it's a pain to model out option/RSU grants/vesting/cancellations and how it flows into FDSO over a multi-year period.
I dug into dilution and SBC about 8 mo ago as well and would love to swap notes. My main takeaway was similar in that most investors don't know how the heck to account for it and there is not a universal best practice. Incorporating into a DCF and modeling out FDSO and then backing out FCF / share seemed liked the best method and most practical but was still wild to me that something you would think every smart investor should have a good grasp on was widely misunderstood.
Can do a DCF a couple different ways, either with implied FDSO increase over time from dilution or using FCF-SBC/Share and a constant share count. Usually a good gut check on the valuation method you normally use (P/E, EV/EBITDA, EV/FCF, etc)
For closer term valuation (and how the street tends to think about it), modeling out the expected FDSO over time and the impact to EPS and EV->per share valuation depending on the company is preferred but it's a pain to model out option/RSU grants/vesting/cancellations and how it flows into FDSO over a multi-year period.