Clearly, technology rules our world. It not only will continue to rule but will grow in importance to our daily lives. Who do you know that doesn’t have a smartphone? Probably nobody. How many people do you know that have cut the cord and don’t have cable, but use over-the-top streaming programming like Hulu? Probably more and more.
As technology continues the inexorable march higher, valuable talent is needed at the biggest companies, and company stock is one carrot that is often dangled. The top companies offer stock-based compensation (SBC), and a new SunTrust report examines who is the most efficient at deploying it.
The report said this:
SBC is an effective tool to incentivize and retain key talent, but it’s a real expense that Internet investors need to closely examine, given its dilutive effect over time. We’ve analyzed data from our entire coverage universe and found that different boards have granted varying levels of SBC, not always commensurate with management and/or stock performance.
The report also highlighted four companies with improving SBC efficiency as a percentage of EBITDA, and all are rated Buy at SunTrust.
This red-hot momentum play has continued to be among the most bought tech companies on Wall Street. Alibaba Group Holding Ltd. (NYSE: BABA) runs the largest retail marketplaces (Taobao, TMall) and leading B2B sites (Alibaba.com, 1688.com) in China and Lazada in Southeast Asia. It collects revenues mainly from commissions, marketing services, subscription fees, cloud computing and software, as well as other value-added services.
The company has gone beyond e-commerce and developed into a sophisticated new type of conglomerate in the cyber-era with e-commerce as the base for the rest of the four businesses: logistics, finance, data-computing and cross-border infrastructure. Top analysts expect a whopping 24% compounded annual growth rate between now and 2018 for e-commerce in China.
SBC as a percentage of EBITDA has dropped from 32% in 2015 to 22% in 2017, a dramatic improvement.
The SunTrust price target for the stock is $225, and the Wall Street consensus target is $223.59. The shares traded early Friday at $199.00.
The huge social media leader has continued to post gigantic numbers. Facebook Inc. (NASDAQ: FB) operates the largest social network, with over 2.0 billion monthly active users and over 1.4 billion daily active users. The company generates revenue from advertising and from payments, with over 95% of revenue from advertising. It generates close to 50% of revenues in the United States and Canada and is expanding rapidly in international markets.
Its solutions also include Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application for mobile and web on various platforms and devices, which enable people to reach others instantly, as well as enable businesses to engage with customers; and WhatsApp Messenger, a mobile messaging application.
SBC as a percentage of EBITDA has dropped from 26% in 2015 to 14% in 2017, another pretty dramatic improvement.
SunTrust has a $225 price target, and the consensus target is $222.81. The shares traded at $184.50 Friday morning.
This internet travel leader was formerly called Priceline. Bookings Holdings Inc. (NASDAQ: BKNG) is an online travel business offering price disclosed and opaque airline tickets, hotel rooms, rental cars, vacation packages and cruises. The company generates over 85% of gross profit from its international brands. Priceline operates Priceline.com, Booking.com, Kayak.com, Agoda.com, Rentalcars.com and OpenTable.
SBC as a percentage of EBITDA has dropped from 7% in 2015 to 5% in 2017, another solid number that reflects a very low part of compensation.
The $2,350 SunTrust price objective compares with a $2,203.60 consensus estimate. The stock traded at $2,190.15.
This stock has been on fire since late last year, and it is another SunTrust favorite. Shutterfly Inc. (NASDAQ: SFLY) is an e-commerce company that enables consumers to store, share and create photo-related merchandise, such as photo books, personalized calendars, greeting cards and numerous other products. The company operates Shutterfly, Tiny Prints, Wedding Paper Divas, BorrowLenses.com and ThisLife.
Shutterfly also operates an enterprise printing business and is based in Redwood City, California, while operating manufacturing facilities in Arizona, Minnesota and South Carolina.
SBC as a percentage of EBITDA has dropped from 31% in 2015 to 19% in 2017, another sizable decline.
SunTrust has set its price target at $90. The consensus target is $65.25, and shares were last seen at $85.25 apiece.
While the stock-based compensation is hardly the most important balance sheet metric, it is increasingly important, and these top companies are managing it as well as anybody in the technology world.