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Twitter Takes Heat For Paying Executives Stock Worth Half Of Its Revenue

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Twitter (NYSE: TWTR) shares moved lower at Monday's opening after a negative item in Barron's pointed out its ongoing lack of net profits and high cost of executives' stock-based compensation.

Twitter posted a net loss of $0.24 per share for the quarter ended June 30, although excluding stock compensation expense, the company earned $0.02 per share.

Barron's pointed out that second-quarter stock compensation for Twitter executives amounted to about half its revenue of $312 million for the period.

"Many tech and social-media companies shower employees with restricted stock which typically vest in three to four years," Barron's said. "But Twitter's largesse puts it in a class by itself."

By way of comparison, Facebook provided executive stock compensation in its second quarter equal to about 10 percent of its revenue, Barron's said.

Twitter, which went public in November and is down 31 percent year to date, isn't expected to achieve net profits until 2017.

A battle over accounting rules in the mid 1990s broke out in earnest over accounting for stock options and ended in a compromise when the Financial Accounting Standards Board recommended -- but didn't require -- that companies treat the item as an expense.

Tech companies in particular, along with some members of Congress, argued at the time that the rule would slow down companies' ability to grow.

FASB, which argued merely that investors need accurate numbers, had identified the issue as early as 1983 and spent more than a decade deliberating.

The result is the so-called "adjusted" earnings followed closely by Wall Street that often diverge sharply from the net figure according to "generally accepted accounting standards."

Posted-In: Earnings News Barron's Intraday Update Media


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