Michael Burry, the renowned investor known for his prescient bet against the housing market in the 2000s, has sparked a heated debate with his recent comments on Tesla's valuation. Burry, who inspired the character in the movie 'The Big Short', is questioning the tech industry's love affair with stock-based compensation.
But here's the kicker: Burry argues that Tesla's market cap, currently at a staggering $1.43 trillion, is 'ridiculously overvalued'. He believes that the electric vehicle maker's success is masking a critical issue—the practice of diluting shareholders' value through excessive stock-based compensation.
Burry highlights that Tesla's annual 3.6% dilution rate, without buybacks, significantly impacts its present value. He points out that the approval of Elon Musk's $1 trillion compensation package will only exacerbate this dilution, further diminishing shareholders' ownership. This is a controversial stance, as many investors have praised Musk's leadership and Tesla's innovative spirit.
The investor's Substack newsletter, 'Cassandra Unchained', delves into the intricacies of stock-based compensation and its impact on company valuations. Burry criticizes the tech industry's widespread use of this practice, which he believes penalizes shareholders by reducing the true profits available to them. He references Warren Buffett's view that such compensation should be treated as a tangible expense, not a mere 'gift from shareholders'.
And this is where it gets intriguing: Burry's newsletter provides an in-depth analysis of how companies use 'adjusted' earnings to downplay the real cost of stock-based compensation, which is not accurately reflected in standard accounting practices.
With Burry's bold statements, a new light is shed on the tech industry's compensation practices. Are these practices sustainable, or are they setting up investors for a big short? The debate is sure to continue, and Burry's insights provide a unique perspective that investors should not ignore.
