The AfterPay Touch Group Ltd (ASX: APT) share price is down 1.7% to $22.94 this morning after shedding over 4% yesterday, although zooming out it remains in a strong long-term uptrend.
There could be any number of reasons behind the share price falls including the simple share market maxim that there's more sellers than buyers.
But why are there more sellers than buyers?
Possible reasons include market concerns over disclosure around the structure of its U.S. business reported in an article in the Fairfax Media, although as I explained in an article yesterday, AfterPay's share-based payments to employees are no secret.
The AFR did highlight that AfterPay may end up issuing up to another 21.7 million shares, although AfterPay notes in its own announcement that this would be the maximum amount issued if the U.S. business heavily outperforms the Australian business for example.
As such its performance linked – so as an investor it's important to remember that if the U.S. business shoots the lights out the share price gains are likely to be such that (most) shareholders won't be complaining about the issue of additional shares.
Moreover, you can't get something for nothing. Therefore any fast-growing start-up that wants to attract and retain top talent to grow its business will need to remunerate staff well, otherwise they could go and work for any number of other high-paying tech companies in the US.
It's also worth noting that if you look through the accounts of any number of junior tech businesses in the U.S. such as Alteryx, MongoDB or Twilio you'll see huge share-based payments to employees are run of the mill. While digressing slightly, it's also worth noting that the likes of Alteryx and MongoDB may have much wider moats or competitive advantages than AfterPay.
However, if anyone does know of a fast-growing tech start-up so brilliant and with such a wide moat it doesn't even need to pay its staff please do let me know the trading ticker.
Foolish takeaway
Even if AfterPay dished out $18.1 million in share-based payments to employees over the six months to December 31 2019, with this number likely to balloon again, it might be worth taking a glass half full approach to the issue.
As at the end of the day it's AfterPay's operating performance that will determine where its valuation ends up over the long term.
As I've written before, I'd rate the stock a hold at this kind of valuation.
