Twitter Inc (NYSE:TWTR) awards higher stock bonuses to its employees than other company in the S&P 1500 Composite Index of the largest U.S. companies, says a report from Market Watch. When these extraordinary bonuses are compared with the weak earnings of the company, it starts to look pretty unbelievable.
Twitter (TWTR) pays high stock-based compensation
For the third-quarter, the company posted a net loss of $175 million on Monday after the close of trading. After excluding the non-cash stock based compensation ,the adjusted net income for the quarter comes at $7 million. The stock of the company tumbled 10% on Tuesday and 2.5% on Wednesday, and is down 31% this year.
Twitter Inc (NYSE:TWTR) is only slightly profitable even after excluding the stock-based compensation expenses, and stock options expense amounted to 47% of the third-quarter revenue of $361 million, higher than any company in the S&P 1500. Twitter is not a part of the S&P 1500 or S&P 500 as the company only completed its initial offering last November. The micro-blogging site has a market value of around $26 billion, making it a large-cap stock.
A must-watch item for shareholders
Investors generally do not pay attention to the stock-based compensations because it does not affect the company’s cash position. However, many companies prefer stock-option handouts to dilute shareholders’ ownership in the company. Twitters diluted share count surged 3% during the third-quarter compared to the second-quarter. Dilution affects earnings per share, an important metric to shareholders.
Stock-based compensation is used to help a company to retain talent. However, from the point of view of a shareholder, it is an important metric that needs scrutiny especially if the company is not making money, notes the report.
Weak 3Q numbers
For the third quarter, the user engagement rate dropped 7% for Twitter Inc (NYSE:TWTR) even after its user base increased 23% in the third-quarter. Additionally, the micro-blogging service has provided weak guidance for fourth-quarter revenue, which is below the consensus estimate. After a ringing performance in the second-quarter where there was an increase of 24% in the user base, Twitter heightened the expectations of the analysts and Wall Street. Since July, Twitter shares have gained 19%, excluding this week’s decline.
Investors are worried that Twitter Inc (NYSE:TWTR) might lose its importance with many new social media mobile messaging services competing in the market. Monthly active users for the company surged 23% to 284 million in the quarter. The metric was slightly down from 24% for the prior three months during the World Cup that helped boost traffic on Twitter.