Internet - Taking Stock of Stock-based Comp.; How SBC Skews Quality of Earnings & Valuations; Rank Ordering Stocks W/in Group

Research evidence excerpt

Internet - Taking Stock of Stock-based Comp.; How SBC Skews Quality of Earnings & Valuations; Rank Ordering Stocks W/in Group

Truist Securities

Equity Research Report June 16, 2026

TMT: Internet

TMT: Digital Media Internet - Taking Stock of Stock-based

Comp.; How SBC Skews Quality of

Youssef Squali Earnings & Valuations; Rank Ordering

212-303-4180

Youssef.Squali@truist.com Stocks W/in Group

SBC is an effective tool to incentivize and retain key talent, but it's a real expense

Robert Zeller that often distorts the quality of earnings, and which investors need to examine closely

212-319-3917 given its dilutive effect. In this updated report, we've analyzed data from 22 covered

Robert.Zeller@truist.com Internet companies and found that various boards have granted varying levels of SBC,

not always commensurate with performance. We rank order companies based on their

Nicholas Cronin SBC efficiency relative to their performance and quantify the impact of SBC expense on

212-326-6149 the per share fair value for these companies (from treating SBC as a cash cost). Note:

Nicholas.Cronin@truist.com we are not changing our current PTs or estimates in this report.

46 Page Document

Since it is difficult to isolate all variables to gauge the impact of SBC treatment on stock

performance, especially given the adverse macro environment of the last couple of

Reasons for this report years which pressured valuations for SMIDs in particular, it's important to look at the

SBC issue through several lenses including 1) the impact of SBC inclusion on fair value

✓ Deep Dive Report by treating it as a cash expense (we define fair value as the sum of the company’s

✓ Deep-Dive Analysis into the SBC profile of estimated future free cash flows discounted back), 2) SBC as a percentage of revenue