Michael Barry attends the premiere of ‘The Big Short’ at the Ziegfeld Theater on November 23, 2015 in New York City.
Dimitrios Cambris | Getty Images
Michael Burley asked teslaHis reputation as an investor of “Big Short” fame took aim at technology companies’ practices of issuing large amounts of stock-based compensation and excluding it from their financial results.
The investor argues that once you factor in the cost of this compensation and the true benefit, which includes negative dilution of the company’s value over time, companies like Tesla should be valued much lower.
“Tesla’s market cap is wildly overvalued today, and has been for quite some time,” Barry, who became famous for calling for a housing market bubble in the 2000s, wrote to new paid Substack subscribers.
Burley pointed out that Tesla is diluting shareholders at a rate of 3.6% each year and does not conduct stock buybacks. He posted a graph with his subscribers, saying it “illustrates the destruction of present value that this level of dilution can cause.”
He said the vote to accept CEO Elon Musk’s $1 trillion compensation plan means investors should expect further dilution. This means that these additional shares will water down the company’s ownership. The package received 75% support among voting stocks, despite opposition from proxy advisors Glass Lewis and ISS.
“With recent news about Elon Musk’s $1 trillion pay package, dilution is certain to continue,” Barry wrote.
Tesla in 2025
Tesla’s market capitalization is currently $1.43 trillion. The electric car maker’s stock price is up more than 6% by 2025, but S&P500 It soared more than 15% during the same period.
Berry noted that it is “not easy” for companies to overcome dilution. He also pointed out that: Palantir and Amazon Like other big-name technology companies, it dilutes its stock through employee-based compensation, which Barry said is “to the detriment of shareholders.”
This newsletter post details how stock-based compensation is not accurately reflected in accordance with Generally Accepted Accounting Principles (GAAP) and how companies have used “adjusted” earnings to falsely present earnings as actual expenses and defy convention.
Barry cited Warren Buffett’s view that stock compensation should be treated as something other than a tangible expense: “What else is there but a gift from shareholders?” Buffett said in Berkshire Hathaway’s 2018 annual letter.
Barry launched Substack, called Cassandra Unchained, late last month after deregistering his hedge fund Scion Asset Management. The blog, which costs $379 per year, has so far focused on why he thinks artificial intelligence is a bubble.
