Comment by AnonC | Hacker News Reader

Comment by AnonC | Hacker News Reader

It always seems like earning nearly consistent profits is under appreciated, whereas revenue and profit growth (unlimited) are seen as the best markers for valuing companies. Apple has generally had very good profits (which also seems enormous in comparison to many other tech companies). While Tim Cook could do a lot better on getting the company to improve the quality of its products (especially software) and reducing efforts on slowly sliding into targeted advertising and tracking — both of which erode consumer confidence and could have a negative effect on the money Apple makes — he’s done quite well in keeping Apple mint a lot of money every quarter (I seem to recall “record breaking quarter” multiple times over the years).

I’m curious to know what kind of pay cuts the CEOs of Meta, Tesla, Amazon, Netflix, Uber and other (tech and non-tech) companies are taking. Not just cuts in base pay, which is usually a paltry sum, but bonuses and other compensation.

That's one of the beautiful things about share-based compensation (from a shareholder angle).

When the share price falls, the CEO and other executives take an automatic pay cut that's pretty directly linked to that (linear in the case of RSUs, superlinear in the case of options).

The pay cut is affine in the case of options, not super linear.

> That's one of the beautiful things about share-based compensation (from a shareholder angle).

The problem with shares is that they have become (or maybe have always been) a purely speculative asset. They rarely reflect the reality, and are always expected to just rise rise rise in price. Even if literally nothing changes, the company remains stable and profitable, the shares will take a dive because continuous unlimited growth is always expected.

Except that's not true.

At the end of the day all stock market returns come from one's of 3 things:

Dividends

Earnings per Share growth

Multiple expansion

Over the long run the speculation that you so decry ( which amounts to Multiple expansion) has a negligible impact (less than 1%).

Sure you have plenty of short term booms and busts, but over the long term they are really irrelevant.

> At the end of the day all stock market returns come from one's of 3 things

None of which really reflect reality, and rely on basically pure speculation.

They also depend on the stock to go up up up up.

> Over the long run the speculation that you so decry ( which amounts to Multiple expansion) has a negligible impact (less than 1%).

Over the long run stocks are just speculation.

I disagree that the others are 100% pure speculation, but let's just look at the case of dividends.

Dividends (especially for companies with a long track record of paying and increasing them) are reality as far as I can tell.

Dividends and EPS are real and don't rely on stock movement at all. It's the exact opposite where they drive stock movement.

Huh? How do dividends depend on “stock to go up up up”? That’s opposite of my experience. How does EPS have anything to do with stock price? I think you have it all backwards.

Stock PICKing is speculative because we can’t predict the future. But that doesn’t mean that the future is unhinged from underlying fundamentals.

On the surface, it's of course "fair" that compensation be tied to performance.

The problem is that we're talking about an ASTRONOMICAL sum of money when it comes to people like Tim Cook. After the 50% pay cut, he's still making $49 million. Beyond a certain level of wealth, the numerical value of one's compensation becomes effectively meaningless. It's just theater for him to say he's taking a "pay cut".

>Beyond a certain level of wealth, the numerical value of one's compensation becomes effectively meaningless.

Depends on your lifestyle inflation. Even for the high earners in the US, 49 million per year is FIRE money, but if you're used to the life of an oil sheikh with luxury clothing, jewelry, art, exotic private parties, dozens of rare supercars, private jets and yachts, McMansions/penthouses in London, Paris, Geneva, NY, Tokyo, etc., some private island where it's nice and warm, and also want to leave a similar lifestyle for your kids and their kids and their kids' kids, then 49 million per year is basically poverty money.

I'll make sure to pour one out for our oil sheikhs tonight

Of wealth, yes, of income, maybe a level below sheiks but still can afford all of this. He is still worth like 1.7 billion USD.

Perhaps with the 49 million per year they can purchase the world's smallest violin.

check out the European Nobility for about 500 years, before the Napoleonic-era for conspicuous consumption. (some of the modern sports-moguls lack taste, from my chair). Of course, that EU Feudal system was powered by serf labor and oversea Imperialism.. think of serfdom as similar to an AWS job with a difficult boss, but with the serfs had more job security.

> 49 million per year is basically poverty money.

You'd think a quote like this, pulled out of context, would change its meaning once seen in context. It doesn't.

There's a vast difference between not being able to afford an absurd lifestyle of consumption and extravagance and being able to eat.

Someone's who's salary is cut from $100M a year to $49M a year, no matter how insane their spending was, isn't going to suffer.

If it's not clear: someone having to choose to buy a Ferrari instead of a Bugatti because of a pay cut is not the same as someone having to choose between shelter or food because of a pay cut.

I'm sorry.

Using a 3% withdrawal rate, $49m let's you safely live off $1.47m per year, far above what "high earners" are even earning. And that's just a flat $49m. You are saying $49m per year. That's a fucking ludicrous amount of money. Even if your hobby is dropping Bugattis off cliffs you won't exhaust that much income.

super linear how? comp is still a fixed number of options, no? other than clawbacks or threshold function awards, which i don't think we're talking about here.

If you have 10K RSUs and the shares are worth $100, they are worth $1M right now. If the shares then go down by 10%, your RSUs went down by 10% (are worth $900K).

If you have options on 50K of those same shares at a strike of $80, the options are in the money by that same $1M. If the shares go down by 10%, the in-the-money amount falls by 50% (to $500K) rather than by 10% (to 900K).

Apple would be so much better if they didn't have to chase extra services revenue.

They don't have to overcharge for App Store services, and have anti-competitive rules like forbidding developers from even showing price breakdown to the customer paying for this or having lower prices on other platforms. They don't have to have "you're not allowed to compete with the iOS" rule in the App Store. They don't have to push users towards Apple Music, Apple Maps, and Apple TV by limiting APIs for third parties (and fame it as it's either Apple favoritism or straight up malware dichotomy). They don't have to expand advertising …except every quarter they must squeeze more money out of users, and they've run out of places where they can do that without degrading user experience and doing asshole moves.

This. All these tech companies have reached saturation, but at the same time they are profitable. I guess investors want upward returns because they expect more money than they put in.

I think this is a case where mature tech companies (ie: FAANG/MS/etc.) should look at paying dividends rather than relying on solely on stock growth. But paying dividends is a whole different, tax-disadvantaged mess compared to pure growth, so there needs to be some tax and regulatory adjustments.

What difference does it make from a shareholder perspective if a business pays dividends or does share buybacks, other than the fact that share buybacks defer tax liability?

dividends allow you to diversify without selling the stock.

Stock buybacks allow you to choose when to diversify instead of only doing it at the company's convenience.

> defer tax liability

Which can be a big deal. It also lets the shareholder control when they take on the tax liability.

Apple pays out dividends...

as does Microsoft. Even NVDA pays a dividend albeit tiny.

Shareholders are the ones pushing ads and poor quality products. They see what windows OEM's and Android are getting away with and are jealous that Apple isn't doing the same with their power. All they care about is maximum money, that's what all their reports and statistics is based on. For apple to overcome this this need to remove the board, go private.

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