Insiders Are Selling Salesforce.com

Oct. 7.13 | About: Salesforce.com, Inc. (CRM)

In this article, I will feature one tech stock that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

Salesforce.com (NYSE:CRM) provides cloud computing and social enterprise solutions to various businesses and industries worldwide.

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Insider selling during the last 30 days

Here is a table of salesforce.com's insider-trading activity during the last 30 days by insider.

Name Title Trade Date Shares Sold Current Ownership (shares+options) Decrease In Ownership
Lawrence Tomlinson Director Sep 26 -Oct 3 6,000 32,800 shares 15.5%
Hilarie Koplow President Oct 2 8,336 93,152 shares 8.2%
Craig Conway Director Oct 1 1,600 17,456 shares 8.4%
Daniel Crump President Sep 30 9,614 14,447 shares + 278,805 options 3.2%
Maria Martinez EVP Sep 11-30 105,393 5,248 shares + 77,783 options 55.9%
Frank van Veenendaal Vice Chairman Sep 9-24 264,601 23,462 shares + 10,000 options 88.8%
Craig Ramsey Director Sep 24 15,000 1,381,384 shares 1.1%
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There have been 410,544 shares sold by insiders during the last 30 days.

Lawrence Tomlinson, Hilarie Koplow, Craig Conway, Daniel Crump and Frank van Veenendaal sold their shares pursuant to a Rule 10b5-1 trading plan. Maria Martinez and Craig Ramsey sold their shares without the Rule 10b5-1 trading plan.

SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.

For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.

In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.

Insider selling by calendar month

Here is a table of salesforce.com's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
October 2013 13,936 0
September 2013 785,061 0
August 2013 77,122 0
July 2013 7,400 0
June 2013 16,200 0
May 2013 94,329 0
April 2013 55,205 0
March 2013 58,468 0
February 2013 36,205 0
January 2013 60,895 0
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There have been 1,204,821 shares sold and there have been zero shares purchased by insiders this year. The month of September has seen the most insider selling this year.

Financials

Salesforce.com reported the fiscal 2014 second-quarter, which ended July 31, financial results on August 29, with the following highlights:

Revenue $957 million
Net income $76.6 million
Cash $930 million
Debt $1.9 billion
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Outlook

Q3 FY14 Guidance:

  • Revenue for the company's third fiscal quarter is projected to be in the range of $1.050 billion to $1.055 billion, an increase of 33% to 34% year-over-year. GAAP net loss per share is expected to be in the range of ($0.19) to ($0.18), while diluted non-GAAP EPS is expected to be in the range of $0.08 to $0.09.

Full Year FY14 Guidance:

  • Revenue for the company's full fiscal year 2014 is projected to be in the range of $4.000 billion to $4.025 billion, an increase of 31% to 32% year-over-year. GAAP net loss per share is expected to be in the range of ($0.44) to ($0.42) while diluted non-GAAP EPS is expected to be in the range of $0.32 to $0.34.

Competition

Salesforce.com's competitors include Workday (NYSE:WDAY), Oracle Corporation (NYSE:ORCL) and SAP AG (NYSE:SAP). Here is a table comparing these companies.

Company CRM WDAY ORCL SAP Industry Average (Application Software)
Market Cap: 31.49B 14.34B 151.35B 87.58B 356.84M
Employees: 9,800 2,100 120,000 64,937 424.00
Qtrly Rev Growth (yoy): 0.31 0.72 0.02 0.04 0.26
Revenue: 3.47B 353.34M 37.37B 21.54B 97.87M
Gross Margin: 0.77 0.60 0.81 0.72 0.69
EBITDA: 72.43M -100.29M 16.26B 7.38B 1.73M
Operating Margin: -0.05 -0.35 0.39 0.29 -0.05
Net Income: -232.26M -141.41M 11.08B 3.84B N/A
EPS: -0.41 -0.99 2.33 3.21 N/A
P/E: N/A N/A 14.27 22.88 37.46
PEG (5 yr expected): 5.60 -2.62 1.09 1.33 1.49
P/S: 9.07 40.57 4.05 4.07 3.99
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Salesforce.com's P/S ratio is above the industry average, which could explain some of the insider selling.

Here is a table of these competitors' insider-trading activities this year.

Company Insider buying / shares Insider selling / shares
WDAY 0 1,184,791
ORCL 0 5,209,577
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Oracle has also seen intensive insider selling during the past 30 days.

Conclusion

There have been seven different insiders selling salesforce.com and there have not been any insiders buying salesforce.com during the past 30 days. Three of these seven insiders decreased their holdings by more than 10%. Salesforce.com has an insider ownership of 0.40%.

Salesforce.com is currently trading at a forward P/E ratio of 101.40 and the company has a book value of $4.75 per share. Before entering short salesforce.com, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are high P/S ratio and the intensive insider selling activity.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in ORCL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.