In recent week, there is one recurring theme among the US Tech companies guidance- they are lowering revenue growth guidance. For example, Twilio/Palantir had been forecasting 25%-30% revenue growth, however due to the expected recession and crypto collapse, forward revenue guidance has been revised downwards.
This means growing their way out of losses into profits have been delayed and share prices have fallen. As these companies pay their Tech employees with a large propotion of share based compensation, the falling share prices means more shares are issued to US Tech workers and existing shareholders worldwide are being diluted faster and faster. For example, Twilio's issuance to its Tech workers for share based compensation is expected to increase to 6% of share base each year. This means for current investors, they are being diluted the worth of their shares 6% each year.
US Practice of Generous Share Based Compensation will Make Investors Outside US Poorer
It is unlikely US will cut the pay of their tech workers by reducing the share based compensation while maintaining the amount paid in cash. US tech companies are unable to increase the cash payout as their operations are still cash burning and will be prolonged given the weaker economic conditions. Conversely, a lower wages paid to US tech workers will result in reduced consumption and in turn a localised recession to US. This is not palatable.
Therefore, global investors will subsidise the wealth effect of US society by being diluted of their investment values while US tech workers get a larger amount of shares and encash it so as to maintain their pay. Hence US will benefit while the rest of the world suffers.
It has not helped where even the retrenched workers are getting their share vestments and are getting a large amount of retrenchment benefits which are eating into the PnL of US Tech companies.
Growth Story No Longer There
It has not helped where US Tech companies revenue has slowed and they are unable to grow into profits in time. Rightfully, due to the declining share prices, US tech companies should move to paying their workers in cash. In the US property and REIT industries, the remueration of their workers has moved to almost a full cash payment so as not to dilute existing shareholders. This was evident when 2 out of the 3 SGX listed US REITs announced they would not be paid in shares but in cash so as to avoid dilution effect to existing shareholders. It happpened too in US listed REITs.
In short, the US Tech industry are still maintining their share compensation package because their promised growth story has not materialised and they prefer having their cash buffer to continue burning. Their Tech workers are highly paid individuals earning a 6 digit annual package. On average, each Twilio employee earns US$82,000 in shares per year and with part of their salary also paid in cash, it is conceivable that an average Twilio employee is earning a 6 digit USD annual salary.
In a way, the US Tech Industry is like a Ponzi scheme where the wealth/cash pumped in by investors are being dispensed out to its workers and early founders and employees by issuing more shares. These shares are then encashed by their workers and more shares are circulated (evident based on the earnings report of many US tech companies). Unfortuntately, as the world has already plonked the cash into these companies, it is impossible to stop it as Tech companies have an unfair structure where founders are given outsized voting rights relative to their stake. In the end, the world has been defrauded by the US Tech sector and a death spiral is looming with value destruction occuring. It is probably the fraud of the decade which may rival that of cryptos.
No comments:
Post a Comment