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In this article, I will feature one services sector 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%.

Netflix (NASDAQ:NFLX) provides Internet television network service that enables subscribers to stream TV shows and movies directly on TVs, computers, and mobile devices in the United States and internationally.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Timothy HaleyDirectorJan 2413,717Yes0 shares + 322 options97.7%
Leslie KilgoreDirectorJan 235,929Yes13,028 shares31.3%
Neil HuntCPOJan 25,000Yes80,786 shares + 9,079 options5.6%

There have been 24,646 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 Netflix' insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
January 201424,6460
December 201322,4490
November 201341,0200
October 2013401,9470
September 201330,4340
August 201336,2350
July 201352,4260
June 201315,9880
May 2013152,9850
April 2013512,8140
March 20137500
February 20131,6040
January 2013398,9710

There have been 1,692,269 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

Netflix reported the full-year 2013 financial results on January 22 with the following highlights:

Revenue$4.4 billion
Net income$112.4 million
Cash$1.2 billion
Debt$500.0 million

Outlook

Netflix expects to end the first quarter with 48 million members.

(Source: Earnings letter)

Competition

Netflix' competitors include Amazon.com (NASDAQ:AMZN), Time Warner (NYSE:TWX), and Google (NASDAQ:GOOG). Here is a table comparing these companies.

CompanyNFLXAMZNTWXGOOG
Market Cap:24.25B180.54B57.12B375.18B
Employees:N/A88,40034,00046,421
Qtrly Rev Growth (yoy):0.240.240.000.12
Revenue:4.37B70.13B29.39B57.39B
Gross Margin:0.300.270.460.57
EBITDA:276.72M3.17B7.93B17.60B
Operating Margin:0.050.010.240.24
Net Income:112.40M132.00M3.76B11.74B
EPS:1.850.284.1136.75
P/E:219.881,429.0915.3830.56
PEG (5 yr expected):4.4314.311.351.61
P/S:5.192.521.946.41

Netflix has the second-highest P/S ratio among these four companies.

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

CompanyInsider buying / sharesInsider selling / shares
AMZN02,436,926
TWX

7,800

1,608,219
GOOG04,490,666

Only Netflix has seen intensive insider selling during the last 30 days.

Conclusion

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

There are eight analyst buy ratings, 25 neutral ratings, and six sell ratings with an average price target of $369.46. Before going short Netflix, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are bearish analyst price targets, and the intensive insider-selling activity.

Disclosure: I am short AMZN. 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.

Source: Netflix: 3 Different Insiders Have Sold Shares This Year