Commentary
Technology investors had a rough year in 2022. The Nasdaq Composite Index went down around 33 percent.
Despite a rebound so far this year, investors are faced with lower revenue growth and a significant structural hurdle—consequences of increasingly higher stock-based compensation awards.
This isn’t a new phenomenon. Technology firms have been gifting lucrative stock and option grants to attract talent. And for a long period of time, investors ignored them. Stock prices went up year after year. There was no need to dive into esoteric financial statement reconciliations.
But this is no longer 2018. Higher interest rates mean high discount rates in valuation models, and the technology companies’ future cash flows are no longer worth as much on a present value basis. The meager valuations must now be divided between more share units….