Technology's COVID Fallout
Let’s accept three facts:
Most “technology” companies compensate employees with stock
These companies had abnormal sales in 2020 and 2021 (Thanks, COVID)
Most high-flying technology stocks are down ~40% since January 1, 20221
If you add up these factors together- what do you get? It seems like DocuSign is figuring that out right now. In a recent earnings call, the CEO was asked why so many sales reps are leaving. His response:
They kind of knew only one DocuSign, which was, quite frankly, achieving the sales success was a heck of a lot easier than it had been previously...From a compensation standpoint, they [sales reps] said, ‘I think I’d be better off trying some place new’
So the reason so many sales reps are leaving is:
A tougher sales environment
Seeing last year’s compensation cut by 30% rather quickly2
This is something I have been watching for a lot of companies lately. This talent drop will especially hurt companies that rely on attracting the most creative people in the world. If this is happening to DocuSign, which doesn’t rely on creativity, imagine what is happening to Netflix’s writers!
Year to date- the stock is down nearly 70%! 50% of Netflix’s compensation last year was in stock- so employees just lost 35% of their 2021 paycheck!
Of course, Netflix will “remedy” this by having to issue more stock as compensation to keep up with their falling stock price. IE if you give out $100 in compensation and have a $100 stock, then you give away one share. If the stock is now worth $50, now you need to give away two shares to match last year's compensation. Ouch!
Be careful if some of your companies are falling into this viscous cycle of employees leaving and falling stock prices. This may get uglier!
Bloomberg screen: Companies that grew sales 40% in 2021 and had price/sales multiple of 10x are down an average and median of 38% and 43% YTD
~50% of compensation seems to be stock-based, and DOCU is down 60% this year