By Adam Levine
Beginning with the annual reports rolling out this year, companies are required to adopt a new accounting standard meant to give more depth to segment reporting.
It's still early days, with fourth-quarter earnings season ongoing, but investors are already getting some new details about public companies. The disclosures are intended to highlight important segment expenses that are presented to the chief operating decision maker, typically the company's CEO.
The newly released annual reports from Meta Platforms and Alphabet offer some of the first new disclosures under the standard, known as ASU 2023-07.
Meta has begun to report segment employee compensation, which is Meta's largest single expense. Meta's main segment, which contains Facebook, Instagram and its other apps, spent $31 billion on employee compensation in 2024, 41% of all expenses for the segment.
Meta's other segment is Reality Labs, home to Meta's virtual and augmented reality hardware and metaverse services. It's been a consistent money-loser, with a $69 billion operating loss since 2019, increasing 10% in 2024 from the year prior.
Employee compensation in Reality Labs was $10 billion in 2024, up 14% on the year in a segment with $2.1 billion in revenue. The segment's operating loss was $18 billion in 2024, and employee compensation accounted for 58% of that.
Much of this compensation isn't cash, but share-based. In total, Meta paid out $41 billion in compensation in 2024; 40% of that came in the form of stock given to employees.
A similar picture is revealed in Alphabet's 2024 annual report. Google's cloud unit had expenses of $37 billion in 2024, and 55% of that was employee compensation. That's a notable shift from 2023, when employee comp was 61% of cloud expenses. The change was driven by $3.4 billion in new depreciation expenses from Google's AI capital expenditures binge, not decreased employee compensation, which was up 8% on the year.
The rest of Google is less reliant on high-salaried workers, with 24% of those expenses being labor costs. And like Meta, a substantial portion of employee compensation was share-based, 35% in 2024.
The insights from the new accounting standard could vary across the economy. In practice, "companies do have a lot of discretion in how they present the information," John Donohue, a partner at accounting firm Moss Adams, says. In the first few annual reports that have been released under the new standard, companies are generally limiting their new disclosures to just their largest expenses.
But some companies may choose to use the new standard to make already existing reporting more understandable. T-Mobile called out 12 different expenses in its single Wireless segment. Only employee compensation expense is new to its reporting, but it's the first time T-Mobile has presented disparate expenses like leases, advertising, and bad debt in the same table.
Moss Adams' Donohue thinks that "as other businesses from other industries report, we're going to see some other interesting differences across industries and across companies, in terms of how these different types of businesses maybe look at things internally as well."
In that case, 2025 may turn out to be an instructive year for shareholders.
Write to Adam Levine at adam.levine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
February 08, 2025 05:00 ET (10:00 GMT)
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