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.
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.