FWIW Twitter lists GAAP numbers above non-GAAP. They're also pretty up front about the fact that the discrepancy between GAAP and non-GAAP is stock-based compensation.
Agreed, Twitter at least reported them in the correct order.
Non-GAAP is still a sham in this case, because ignoring employee stock compensation to boost your earnings is like ignoring employee salaries to boost your earnings. It does not make sense for anything other than attempting to deceive investors.
Yeah I'm not really sure why that's such a popular thing, but I don't think investor deception is the point of it. I think I could argue that high stock-based compensation charges in the first few quarters after an IPO are an artifact of the way GAAP treats stock-based compensation in the first place.
But GAAP is handling it correctly. The dilution that stockholders will experience from stock-based compensation is very much real. And the earnings should reflect that.
Non-GAAP numbers are almost always done to deceive investors. In the dot-com days, it was EBITDA. These days, it's earnings before stock-based compensation.
A big chunk of the stock-based compensation they are expensing is related to pre IPO equity grants. E.g. if they granted some stock to an engineer in 2009, they now have to recognize that as an expense in 2013 because of the IPO. In my example, the dilution happened in 2009 but affects GAAP profitability in 2013. I understand why ongoing stock-based compensation should be included in the income statement, but I'm less clear about why stock grants that happened way in the past are important.
I posted this in another thread, but they acknowledged this situation in their S-1 (from last September).
Following the completion of this offering, the stock-based compensation expense related to Pre-2013 RSUs and other outstanding equity awards will have a significant negative impact on our ability to achieve profitability on a GAAP basis in 2013 and 2014.
> In my example, the dilution happened in 2009 but affects GAAP profitability in 2013.
Then Twitter should restate its non-GAAP results for 2009-2013 to subtract out the stock grants from previous quarters' results.
The numbers have to add up. If you exclude something from the non-GAAP results for one quarter, then it has to appear in the non-GAAP results for another quarter. The money cannot simply disappear into thin air.
If a company reports non-GAAP results, then it should be required to report a cumulative difference vs. GAAP. Over time, the cumulative difference should go to zero, as the timing differences are worked out.
It's not a Ponzi scheme. A Ponzi scheme requires some element of fraud, yet here you have Twitter's earnings statement and balance sheet right out in the open. There are reasonable people who think investing in a company presently running at a loss but with a potential for generating huge profits is a reasonable thing to do.
Just poking at your numbers a bit, of that 600M in R&D, 379M was from stock based compensation that hit them in the 4th quarter because of the IPO (they had to expense the RSUs at that point). Don't you think it's a little strange that $400M of the $600M in R&D costs were accrued in the 4th quarter?
I'm not advocating buying Twitter stock. Just trying to counter some of the overzealous cynicism in this thread.
Alright, let's try again (from the same balance sheet):
Year 2012: revenue 316M, cost & expenses: 394M
Year 2013: revenue 664M, cost & expenses: 1300M
year over year, revenue increases 2 folds, cost increases more than 3 times. Does that answer your question? You could also break it down by quarters, but the same trend is still there.
https://investor.twitterinc.com/releasedetail.cfm?ReleaseID=...