Stock based compensation: Who Twitter pays to retain? An analysis vs Facebook.

For What It’s Worth
4 min readMay 17, 2016


Both Facebook and Twitter came out with their Q1 2016 earnings recently. Though one could write a whole story on what went right for FB and wrong for Twitter, I wanted to focus on another oft discussed topic — stock based compensation (SBC). Specifically, I wanted to highlight the differences between the two companies when using SBC to retain employees in various functions.

To start the analysis, I looked at the income statements and earning slides which both the companies released as part of their Q1 2016 earnings. I focussed on the SBC each company was disbursing to their employees for the past 5 quarters (since Q1 2015). My goal here is to shed some light on how each of the 2 companies are using SBC to retain different types of employees (Sales, Product/Eng, Finance and so on). Here is what I found:

Twitter Stock-based Compensation Distribution over the Past 5 Quarters (in $millions)
Facebook Stock-based Compensation Distribution over the Past 5 Quarters (in $millions)

The first thing I noticed is how the R&D as well as Sales/Marketing SBC expenses (as a percent of total SBC) differ for the two companies. Let us zoom into this:

Percent distribution of Twitter SBC on various functions (Q1 2016)
Percent distribution of Facebook SBC on various functions (Q1 2016)

Using these charts, here are some takeaways:

  • Twitter spends a lot to retain sales/marketing talent. In Q1 2016, they spent 30% of their SBC on sales/marketing compared to 11% which Facebook spent on the same.
  • More tellingly, in absolute terms, Facebook spent $82M in SBC on sales/marketing talent in Q1 vs. Twitter’s $46M. This seems very disproportionate given Facebook’s Q1 revenue was 9x greater than Twitter’s! This means Twitter is spending ~5x more than Facebook in SBC on sales/marketing talent per revenue dollar.
  • On the other hand, while Facebook uses 78% of their SBC to retain R&D talent (which is essentially engineering/product employees per their 10-Q), Twitter uses 50% of their SBC expenses for R&D.
  • Given the challenges Twitter is facing to increase their MAUs and engagements, one would have expected them to shore up their engineering resourcing to focus on building new products to help with that. However, in absolute terms while Facebook spent $586M in SBC (in Q1 2016) on R&D talent, Twitter only spent $76M. Of course, Facebook is a much bigger (and richer) company, but this difference in R&D SBC expenses is telling given sales/marketing SBC for the two companies were quite comparable.
  • Lastly, Facebook’s SBC expenses in Q1 amounted to 13.8% of their total revenue; Twitter’s was 25.4%.

Now let us look at how the SBC for the two companies have trended over the past few quarters:

Twitter’s distribution of SBC over the past 5 qtrs (% of total SBC)
Facebook’s distribution of SBC over the past 5 qtrs (% of total SBC)
  • From these trend charts, one can notice that Facebook’s R&D SBC expense has been steady at ~80% over the past 5 quarters. Also, their sales/marketing SBC expense has been steady at around 10%.
  • For Twitter, their R&D SBC expense has fallen from ~60% to 50% while sales/marketing R&D expense has increased from 22% to 30%. There was considerable movement that happened in Q1 across these two curves — notably because of the layoffs which happened at Twitter in Q4 2015 that mostly affected their product/engineering talent. Also, Twitter hired a new CMO in Q1 2016 which might have added to sales/marketing SBC expense as well.

To be fair, it could be possible, though unlikely, that Twitter is paying their sales/marketing folks less in cash and more in SBC (or vice versa for their R&D talent) vs. Facebook which could explain why the numbers for the two companies are so disproportionately different.

There has been a good amount of coverage on Facebook’s and Twitter’s use of stock based compensation to attract and retain talent as well as whether SBC should be considered when determining non GAAP profit/loss. As this analysis shows, not only the magnitude of SBC, but also where it is being spent is equally useful when developing the full picture about a company.



For What It’s Worth

Product Manager & Tech Analyst