The SaaS Reckoning
- Source
- x.com
- Author
- Bill Gurley
- Date
Context
A falling share price can turn stock-based pay into a choice between employee compensation and shareholder dilution. Bill Gurley's essay illustrates the arithmetic: after a 50% price decline, delivering the same dollar value requires twice as many shares. Keeping grants unchanged leaves employees with less valuable awards; increasing grants can reduce existing shareholders' ownership share.
This is why Gurley challenges profitability measures that exclude stock-based compensation. Paying employees in equity may conserve company cash, but shareholders still bear an economic cost. The argument identifies a vulnerability in software businesses whose apparent profitability depends on excluding that compensation.
- The convention of adding stock comp back to EBITDA, operating income and free cash flow treated 5-8% annual shareholder dilution as a footnote. Non-cash was read as non-economic, but the dilution and the vest-day selling pressure were always real.
- The most exposed companies are the ones that never reached profitability with stock comp counted. Equity grants were quietly subsidizing a cost structure that could not stand alone, and that subsidy just got far more expensive.
- The argument is not that SaaS is broken. Recurring revenue, high gross margins and scalable delivery still work. What changes is counting stock comp for what it is: compensation, denominated in cash, paid for by shareholders.
“The uncomfortable truth is that RSUs have always been a cash equivalent.”
“They experience it as a pay cut.”
“In a capital-light, talent-heavy model, there is no version of this that doesn't hurt.”
“But the current environment is revealing a cost that was always there, hidden in plain sight behind an add-back.”
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