Roblox (RBLX -3.66%), DoorDash (DASH -2.01%), and AMC Entertainment (AMC -3.25%) make an unlikely trio. The metaverse pioneer is rarely grouped with the food delivery service and movie theater chain. Nevertheless, all three have this one characteristic in common: diluting their shareholders.
Each has substantially increased its share counts, which could have negative implications for shareholders. Let's look closer at the details.
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DoorDash
DoorDash has been one of the prime beneficiaries of the coronavirus pandemic. At the onset, restaurants were forced to close to in-person diners. As a result, folks who wanted to enjoy meals from their favorite restaurants had to order for delivery or pickup. Sales surged 226% for DoorDash in 2020 and then 69% in 2021.
Not as impressively, DoorDash also drastically increased its share count. In its fiscal year ended Dec. 31, its weighted average shares outstanding rose to 336.8 million, up from just 62.4 million in the year before. In 2021, DoorDash spent $486 million in stock-based compensation. In other words, it's paying employees in stock options and grants instead of in cash.
Why is this important to investors? Shares are entitled to profits. For instance, if DoorDash earned $100 million in earnings in 2022, it would be split among 336.8 million shares, compared to 62.4 million before the dilution. Each share is now entitled to a smaller serving of profits, an undesirable outcome to be sure.
Roblox
Similarly, Roblox has thrived during the pandemic. At the onset, millions of kids were sent home for remote learning, resulting in a surge of revenue and new customers for the metaverse pioneer. More specifically, revenue expanded by 82% in 2020 before rising by 108% in 2021.
Unfortunately, Roblox shareholders were also exposed to dilution. Weighted average shares outstanding exploded to 505.8 million in 2021, up from 180.1 million in 2020. In 2021, Roblox spent $342 million in stock-based compensation.
AMC Entertainment
AMC experienced the opposite effect of the pandemic compared to the aforementioned businesses. It was forced to close its doors to in-person viewers for several months. The shutdown devastated the company as sales crashed and expenses remained too high for comfort. After collapsing by 77% in 2020, revenue bounced back by 104% in 2021. Still, AMC is far below pre-pandemic levels.
Like the others, AMC has increased its outstanding shares. That figure rose to 477.4 million in 2021, up from 117.2 million in 2020. AMC didn't increase its share count because of paying stock-based compensation. Instead, the company took advantage of its soaring share price to issue new shares to the public to raise much-needed capital.
What this could mean for investors
Companies can increase their share counts for a number of reasons. Sometimes, it might be to get cash in return to bolster the business. Or a company might use the additional shares to pay employees through stock-based compensation. Younger companies short on money sometimes use this method to attract the talent needed for growth.
While it's not always the case, rising share counts are often followed by stock price drops. That's understandable since if each share is entitled to a smaller percentage of profits, each share is worth less (holding everything else constant). Overall, one thing generally can be said for companies diluting shareholders to a substantial degree: cash is not abundant.
