What is SBC/Revenue?
SBC-to-Revenue measures what percentage of revenue is spent on employee stock compensation. It shows the real cost of compensating employees with equity, which dilutes existing shareholders.
Think of it like this
Imagine you own a pizzeria making $100k in sales. If you give employees stock worth $10k annually instead of cash, that's 10% SBC-to-Revenue. It's like giving away 10% of your business each year to employees - real dilution for owners!
Formula
SBC/Revenue = (Stock-Based Compensation / Total Revenue) × 100%- Stock-Based Compensation: Total value of stock/options granted to employees annually
- Revenue: Total sales for the period
Why it matters
- Shows real cost of employee compensation
- High SBC dilutes shareholders
- Critical for evaluating tech companies
- Often overlooked in reported earnings
What's a good value?
< 5%
Low
Minimal dilution, mature company
5-10%
Moderate
Typical for profitable tech companies
10-20%
High
Significant dilution, growth stage
> 20%
Very High
Excessive dilution, red flag
Real-world example
Uber 2019: 35% SBC/Revenue - extremely high, burning shareholders. Netflix: 5-8% - reasonable for profitable streaming. Amazon AWS: 3-5% - mature business unit. Unprofitable startups: 20%+ common.
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