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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%.

Glu Mobile (NASDAQ:GLUU) develops and publishes a portfolio of action/adventure and casual games for the users of smartphones and tablet devices.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Hany NadaDirectorDec 23-24328,779Yes5,394,439 shares5.7%
Matthew RicchettiPresident of StudiosDec 12-2362,500Yes0 shares + 237,500 options20.8%
Niccolo de MasiCEODec 23150,000Yes44,909 shares + 900,000 options13.7%

There have been 541,279 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 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 Glu Mobile's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
December 2013541,2790
November 201300
October 2013225,0000
September 201300
August 201300
July 201300
June 201300
May 201300
April 201300
March 2013733,5400
February 2013794,6000
January 201300

There have been 2,294,419 shares sold, and there have been zero shares purchased by insiders this year.

Financials

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

GAAP Revenue$21.7 million
GAAP Net loss$8.0 million
Cash$27.7 million

(click to enlarge)

(Source: Earnings presentation)

Outlook

Glu Mobile's guidance is as follows:

 Q4/2013FY2013
Non-GAAP revenue$31.5-$32.5 million$102.0-$103.0 million
Non-GAAP net income$0-$0.4 million-$10.5 to -$11.0 million

(click to enlarge)

(Source: Earnings presentation)

Glu Mobile provided an estimated initial baseline total non-GAAP revenue growth rate of approximately 15% to 20% for 2014 from the full year 2013 guidance set forth above.

(click to enlarge)

(Source: Earnings presentation)

Competition

Glu Mobile's competitors include DeNA Co (OTC:DNACF), and Electronic Arts (NASDAQ:EA). Here is a table comparing these companies.

CompanyGLUUDNACFEA
Market Cap:293.11M2.62B7.32B
Employees:5212,1089,300
Qtrly Rev Growth (yoy):-0.17-0.05-0.02
Revenue:97.08M2.60B3.78B
Gross Margin:0.690.700.65
EBITDA:-16.83M982.85M441.00M
Operating Margin:-0.250.340.06
Net Income:-23.45M537.98M227.00M
EPS:-0.344.040.74
P/E:N/A4.9932.20
PEG (5 yr expected):-0.84N/A1.14
P/S:3.161.011.95

Glu Mobile has the highest P/S ratio among these three companies. In Electronic Arts, there have been 1,244,614 shares sold, and there have been 31,300 shares purchased by insiders this year. Only Glu Mobile has seen intensive insider selling during the last 30 days.

Conclusion

There have been three different insiders selling Glu Mobile, and there have not been any insiders buying Glu Mobile during the last 30 days. Two of these three insiders decreased their holdings by more than 10%. Glu Mobile has an insider ownership of 25.75%.

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

Source: Glu Mobile: 3 Different Insiders Have Sold Shares This Month