Tesla [$TSLA] stock touched $744.49 Monday, giving the company a market cap of more than $700 billion for the first time. A closing price of $738.48 or above would mean it ended the day valued at more than $700 billion, a gain of roughly 10% away from passing Facebook’s [$FB] $765 billion– But who’s counting?
It took Tesla’s market 111 trading days to leap from $100 billion to $200 billion, 13 days to go from $200 billion to $300 billion, 27 days to go from $300 billion to $400 billion, and 63 days to go from $400 billion to $500 billion. It shot up from $500 billion to $600 billion in eight days, and took 18 more to go from $600 to $700 billion.
The Dow Jones data is derived from the basic share count of 950 million shares, but Tesla unveiled about 1.1 billion fully diluted shares outstanding in its Q3 report. The disparity of 150 million between basic and diluted shares is largely due to management stock options, restricted share units, and stock warrants. Musk’s Net Worth Eclipses $100B This Year
Facebook’s basic and diluted share counts, based on its Q3 financial report, are 2.85 billion and 2.89 billion shares, respectively. On a fully diluted basis, Facebook is worth about $780 billion, failing to reach Tesla’s total. LOL: Analyst Compares Tesla to AOL
The dichotomy between basic and diluted shares for Tesla is larger than at most companies because Musk, the CEO, gets most of his compensation through stock awards that are bound to the company’s performance. On the contrary, General Motors [$GM] recorded 1.432 billion basic shares outstanding in its Q3 report and 1.439 billion fully diluted shares outstanding, for a gap of 7 million.
Tesla bulls likely have no issue with paying Musk in stock, as he’s brought about a ton of value. Shares skyrocketed about 740% in 2020, thus pulverizing returns of the S&P 500 and most other automotive stocks.
Make no mistake, accounting for stock options is no easy feat. One way to elucidate options in corporate valuations is known as the treasury stock method, which presumes the company receives cash from the management stock options, then turns around to use that cash to repurchase shares. Since the options are priced below the current share price, a company can’t gobble up all the stock just issued to management. The basic share count starts to bubble, merging with the diluted figure, as the options are exercised. Carl Icahn’s Annual Two Cents on the Market
That’s a coherent route to take. But investors ought to recall that if they value Tesla with fully diluted shares outstanding, then they should nullify the share-based compensation recognized in the Tesla income statement. Companies are obligated to pinpoint an expense for share-based compensation.
Tesla, for instance, realized $1.1 billion in stock-based compensation through the first nine months of 2020. Typically, stock compensation expenses go higher as gains in a company’s share price accelerates. A higher stock price inevitably pushes the options premium higher.
Musk runs a bizarre company, as it exclusively makes EV’s and is the most valuable auto company in the world. The options situation is just another unusual factor to consider when comparing Tesla to its peers. Tesla stock was up about 2.9% in afternoon trading at $726.43. News that Q4 deliveries were strong, reported over the weekend, is what has propelled the stock. The Dow, on the other hand, was down about 1.7%.