Why Palantir Has Massive Stock Based Compensation

Employee stock-based compensation boosts work ethic

In the current market environment, companies partaking in share dilution are considered un-investable by many people. Often it is forgotten that share dilution when done properly can be a fantastic tool for long term growth. A strategy that can yield outsized returns for investors who focus on a company's trajectory over decades rather than quarter to quarter.

While stock dilution can be a controversial topic, it can also be a necessary evil for companies that want to grow faster than normal.

One way that companies can use stock dilution to their advantage is by compensating their employees with equity in the company. When an employee receives shares of the company they work for, they are effectively given ownership in the company, and their work ethic is often boosted as a result.

In many cases, employees who receive equity in their company feel a greater sense of responsibility for the success of the business. They are more likely to work harder and to be more innovative in their approach to problem-solving because they have a direct stake in the outcome. This is especially true for companies with startup-like potential. Companies where every employee can make a significant impact on the company's future success.

Stock-based compensation can also be a great way to attract top talent to a company. When a potential hire is considering multiple job offers, the offer of equity in the company can be a compelling factor in their decision-making process.

By offering equity as a form of compensation, a company can effectively align the interests of its employees with those of its shareholders.

Using funds generated by stock dilution to boost growth.

Another way that stock dilution can be used to a company's advantage is by using the funds generated to purchase smaller, faster-growing companies.

This can be an effective way for a company to expand its business and maintain high levels of growth over the long term.

While a company may be able to maintain steady growth in its core business for a period of time, it is unlikely that it will be able to sustain 20-30% growth for decades at a time.

This is where acquiring smaller, faster-growing companies comes in. By adding new, high-growth segments to its business, a company can continue to expand its revenue and earnings.

Of course, there are risks involved in acquiring other companies, especially if the acquisition is financed through stock dilution. If the acquisition doesn't go well, the dilution can result in significant losses for shareholders.

However, if the acquisition is successful, the long-term benefits to the company can be substantial.

Palantir and share dilution

As Palantir Investors, we are no stranger to Shareholder dilution. On one hand it is unfortunate as it erodes an individual investor’s ownership percentage over time.

However, as stated above, if done correctly a decreased percent of ownership in a pie that is potentially magnitudes of times larger than the one that would have been.

5% of $100 million is significantly more money than 10% of 10 million.

If you are a Palantir investor, you are taking a calculated risk that Alex Karp and the rest of management are using the capital generated from the dilution of your shares due to stock based compensation, to grow the company faster than otherwise possible.

The benefit of Palantir partaking in Stock based compensation dilution rather than acquisition style dilution is that it is far more predictable and steady for future analysis. We know that dilution is around 7% and tapering off over the next several years as the vesting period for employees ends.

We are all just assuming that Palantir over the long term will be able to grow at a pace that far eclipses whatever the dilution rate is in the short term.

Thanks for reading the article. If you'd like to get in contact, please @ me on twitter here or email me at amit@dailypalantir.com. You can join our Palantir Facebook group here to participate in community discussions, polls, and more. You can check out daily palantir audio content here.