A Tesla car
Christian Kaspar-Bartke/Getty ImagesTesla ‘s market capitalization exceeded $700 billion on Monday, an impressive milestone. And counting a different way, Elon Musk’s company is worth more than Facebook, a tech giant once seen as orders of magnitude more valuable.
Tesla (ticker: TSLA) stock hit $744.49 Monday, giving the company a market capitalization of more than $700 billion for the first time, according to Dow Jones Market Data. 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.
Tesla’s market capitalization, according to Dow Jones Market Data, took 111 trading days to go 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 leapt 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 based on the basic share count of roughly 950 million shares. But Tesla reported about 1.1 billion fully diluted shares outstanding in its third-quarter report. The difference of 150 million between basic and diluted shares is due to things such as management stock options, restricted share units, and stock warrants.
With 1.1 billion shares outstanding, Tesla hit about $820 billion in market value Monday.
Facebook’s basic and diluted share counts, based on its third-quarter financial report, are 2.85 billion and 2.89 billion shares, respectively. On a fully diluted basis, Facebook is worth about $780 billion, falling short of Tesla’s total.
The difference 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 tied to the company’s performance. General Motors (GM), by way of contrast, reported 1.432 billion basic shares outstanding in its third-quarter report and 1.439 billion fully diluted shares outstanding, for a gap of 7 million.
Investors probably are fine with paying Musk in stock. He has generated a lot of value. Shares rose about 740% in 2020, crushing returns of the S&P 500 and most other automotive stocks. Still, it’s a good idea for investors to know about the valuation difference.
Accounting for stock options isn’t easy. One way to account for options in corporate valuations is called the treasury stock method. That method assumes the company gets cash from the management stock options and then uses that cash received to repurchase shares. Since the stock options are priced below the current share price, a company can’t buy back all the stock just issued to management. The basic share count creeps up, converging with the fully diluted figure, as stock options are exercised.
That’s a sound way to do it. But investors should also remember than if they value Tesla with fully diluted shares outstanding, then they should back out the share-based compensation recognized in the Tesla income statement. Companies are required to recognize an expense for share- based compensation. Tesla, for instance, recognized $1.1 billion in stock-based compensation through the first nine months of 2020.
In general, stock compensation expenses go higher as gains in a company’s share price speed up. A higher stock price makes the options worth more.
Tesla is a unique company. It makes only electric vehicles and is the most valuable auto company on the planet. 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 fourth-quarter deliveries were strong, reported over the weekend, is what has lifted the stock. The Dow Jones Industrial Average, on the other hand, was down about 1.7%.
Write to Al Root at allen.root@dowjones.com
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