Michael Burry, the investor known for his call on the 2000s housing market bubble, has taken aim at Tesla's valuation, calling it 'ridiculously overvalued'. In a recent Substack newsletter, Burry criticized the tech industry's widespread practice of issuing stock-based compensation and excluding it from earnings results. He argues that this practice leads to a misrepresentation of companies' true profits and dilutes shareholder value over time.
Burry highlights Tesla's annual dilution rate of 3.6% and the lack of share buybacks as significant issues. He also points out that the recent approval of Elon Musk's $1 trillion compensation plan will further dilute existing shareholders. Burry argues that Tesla's market capitalization should be lower, considering the negative impact of dilution on the company's value.
The investor further emphasizes that this dilution issue is not unique to Tesla. He mentions companies like Palantir and Amazon as examples of tech giants that also dilute their shares through employee-based compensation, a practice he considers detrimental to shareholders. Burry also criticizes the way stock-based compensation is treated under Generally Accepted Accounting Principles (GAAP), suggesting that companies use 'adjusted' earnings to hide the true cost of this compensation.
Burry's newsletter, 'Cassandra Unchained', launched after he deregistered his hedge fund, Scion Asset Management, focuses on his views on the artificial intelligence bubble. The subscription-based blog has gained attention for its bold opinions on market valuations and the tech industry's practices.
