Coinbase, Robinhood stock compensation could cause 7%/year dilution: J.P. Morgan

Coinbase Global (NASDAQ:COIN) stock is dropping 2.0% and Robinhood Markets (NASDAQ:HOOD) shares are slipping 0.6% in Monday premarket trading after J.P. Morgan analyst Kenneth Worthington calculated that the companies' declining stock prices could increase share dilution by 7% annually in coming years.In the past year, Coinbase (COIN) stock has dropped 69% and Robinhood (HOOD) plunged 74% as seen in this chart.Like their tech peers, both companies issue substantial equity in the form of restricted stock units ("RSUs") to employees as a way to incentivize their staff while keeping cash compensation lower, the analyst wrote in a note to clients.With both stocks falling in the past year, that would force Coinbase (COIN) and Robinhood (HOOD) to issue even more shares to provide the same amount of value to employees. When companies issue or sell more shares and share equivalents, the larger number of shares outstanding reduces existing holders' percentage stakes in the company, a dynamic known as dilution. At current stock prices, "the value granted historically could drive 10%-15% annual dilution," Worthington said. But he expects both to reduce the equity granted to employees in the form of RSUs."We estimate the level of share issuance and dilution would reduce the value of each company to existing shareholders by 30% were 7% dilution to persist for five consecutive years," the analyst said.The note likely isn't the only reason t...