Splunk: 8 Insiders Have Sold Shares This Year

Jan.21.14 | About: Splunk Inc. (SPLK)

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%.

Splunk (NASDAQ:SPLK) provides software solutions that provide real-time operational intelligence.

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Insider selling during the last 30 days

Here is a table of Splunk'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
Godfrey Sullivan CEO Dec 26-Jan 15 70,000 Yes 2,554,240 shares + 2,527,515 options 1.4%
Thomas Neustaetter Director Dec 26-Jan 15 6,000 Yes 73,103 shares 7.6%
Thomas Schodorf SVP Dec 24-Jan 14 30,748 Yes 281,911 shares + 168,498 options 6.4%
Steven Sommer SVP Jan 7-14 63,098 Yes

479,617 shares

11.6%
Leonard Stein SVP Jan 13 10,000 Yes 87,774 shares + 198,528 options 3.4%
David Conte CFO Jan 8 22,918 Yes 110,000 shares + 445,834 options 4.0%
Nicholas Sturiale Director Jan 6 6,250 Yes 4,708 shares + 25,000 options 17.4%
Guido Schroeder SVP Jan 3 8,000 Yes 114,782 shares + 578,000 options 1.1%
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There have been 217,014 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 Splunk's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
January 2014 197,514 0
December 2013 123,948 0
November 2013 120,166 0
October 2013 130,668 0
September 2013 539,091 0
August 2013 115,166 0
July 2013 309,857 0
June 2013 116,971 0
May 2013 121,500 0
April 2013 307,500 0
March 2013 413,513 0
February 2013 94,000 0
January 2013 104,500 0
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There have been 2,694,394 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

Splunk reported the fiscal 2014 third-quarter, which ended October 31, financial results on November 21 with the following highlights:

Revenue $78.6 million
Net loss $16.6 million
Cash $351.9 million
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Outlook

Splunk's guidance is as follows:

Q4/2014 FY2014
Revenue $88-$90 million $291-$293 million
Non-GAAP operating margin 6%-8% ~0%
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Competition

Splunk's competitors include CA Technologies (NASDAQ:CA), Compuware (NASDAQ:CPWR), and International Business Machines (NYSE:IBM). Here is a table comparing these companies.

Company SPLK CA CPWR IBM Industry Average (Application Software)
Market Cap: 8.55B 15.54B 2.32B 206.41B 313.82M
Employees: 736 13,600 4,491 434,246 408.00
Qtrly Rev Growth (yoy): 0.51 -0.01 0.03 -0.04 0.22
Revenue: 267.94M 4.61B 953.41M 101.36B 98.90M
Gross Margin: 0.89 0.86 0.63 0.49 0.68
EBITDA: -43.68M 1.59B 135.25M 25.94B 1.17M
Operating Margin: -0.19 0.31 0.10 0.21 -0.05
Net Income: -52.54M 1.06B -12.01M 16.13B N/A
EPS: -0.51 2.34 -0.06 14.44 N/A
P/E: N/A 14.71 N/A 13.17 33.44
PEG (5 yr expected): -318.68 0.83 2.92 1.24 1.27
P/S: 31.80 3.33 2.44 2.02 3.73
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Splunk has the highest P/S ratio among these four companies.

Here is a table of these competitors' insider-trading activities during the last 12 months.

Company Insider buying / shares Insider selling / shares
CA 0 728,045
CPWR

0

779,518
IBM 1,000 330,884
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Only Splunk has seen intensive insider selling during the last 30 days.

Conclusion

There have been eight different insiders selling Splunk, and there have not been any insiders buying Splunk during the last 30 days. Two of these eight insiders decreased their holdings by more than 10%. Splunk has an insider ownership of 29.30%.

There are 13 analyst buy ratings, nine neutral ratings, and one sell rating with an average price target of $75.08. Before going short Splunk, I would like to get a bearish confirmation from the Point and Figure chart. The four main reasons for the proposed short entry are negative earnings, relatively high P/S ratio, bearish analyst price targets, 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.