Insiders Are Selling Facebook

Nov.12.13 | About: Facebook (FB)

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%.

Facebook (NASDAQ:FB) operates as a social networking company worldwide.

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Insider selling during the last 30 days

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

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Marc Andreessen Director Nov 6 1,200,000 No 4,565,112 shares 20.8%
David Fischer VP Nov 6-7 36,000 Yes 481,082 shares 7.0%
Colin Stretch VP Oct 14-Nov 5 15,718 Yes

44,835 shares

26.0%
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There have been 1,251,718 shares sold by insiders during the last 30 days. More details about the Rule 10b5-1 trading plan can be found from this link.

Insider selling by calendar month

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

Month Insider selling / shares Insider buying / shares
November 2013 1,238,977 0
October 2013 41,535 0
September 2013 417,604 0
August 2013 3,032,392 0
July 2013 1,121,508 0
June 2013 602,164 0
May 2013 1,886,138 0
April 2013 573,650 0
March 2013 636,513 0
February 2013 3,324,003 0
January 2013 931,142 0
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There have been 13,805,626 shares sold and there have been zero shares purchased by insiders this year.

Financials

Facebook reported the third-quarter financial results on October 30 with the following highlights:

Revenue $2.0 billion
Net income [GAAP] $425 million
Net income [Non-GAAP] $621 million
Monthly active users 1.2 billion
Cash $9.3 billion
Debt $0.6 billion
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(Source: Earnings presentation)

Competition

Facebook's competitors include Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), and Twitter (NYSE:TWTR). Here is a table comparing these companies.

Company FB GOOG MSFT TWTR Industry Average (Internet Information Providers)
Market Cap: 115.35B 338.17B 313.13B 22.31B 177.05M
Employees: 5,794 46,421 99,000 2,300 399.00
Qtrly Rev Growth (yoy): 0.60 0.12 0.16 1.05 0.15
Revenue: 6.87B 57.39B 80.37B 534.46M 120.96M
Gross Margin: 0.76 0.57 0.74 N/A 0.57
EBITDA: 3.26B 17.60B 31.37B -56.86M 7.62M
Operating Margin: 0.34 0.24 0.35 -0.25 0.06
Net Income: 1.01B 11.74B 22.64B -142.56M N/A
EPS: 0.39 36.75 2.67 -1.11 0.05
P/E: 120.13 27.50 14.01 N/A 31.56
PEG (5 yr expected): 1.92 1.41 1.97 N/A 1.64
P/S: 16.98 5.92 3.92 42.45 2.89
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Facebook has the second-highest P/S ratio among these four companies.

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

Company Insider buying / shares Insider selling / shares
GOOG 0 4,348,180
MSFT 0 80,653,492
TWTR 0 0
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Google and Microsoft have also seen intensive insider selling during the past 30 days.

Conclusion

There have been three different insiders selling Facebook and there have not been any insiders buying Facebook during the past 30 days. Two of these three insiders decreased their holdings by more than 10%.

Facebook is trading at a P/E ratio of 120.13 and a forward P/E ratio of 42.40. The company has a book value of $5.37 per share.

Before entering short Facebook, I would like to get a bearish confirmation from the Point and Figure chart. The three main reasons for the proposed short entry are high P/S ratio, high P/E ratio, and the intensive insider selling activity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within 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.