Splunk: 7 Insiders Have Sold Shares This Month

Mar.18.14 | About: Splunk Inc. (SPLK)

Summary

Seven insiders sold Splunk stock within one month.

The stock was not purchased by any insiders in the month of intensive selling.

Two of these seven insiders 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 activity during the last 30 days.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Thomas Schodorf SVP Feb 18-Mar 13 31,750 Yes 252,161 shares + 136,498 options 7.6%
David Conte CFO March 10-13 25,416 Yes 107,500 shares + 400,002 options 4.8%
Godfrey Sullivan CEO Feb 19-Mar 12 130,000 Yes 2,444,240 shares + 2,447,515 options 2.6%
Thomas Neustaetter Director Feb 19-Mar 12 6,000 Yes 61,103 shares 8.9%
Guido Schroeder SVP March 3-10 108,000 Yes 113,430 shares + 462,000 options 15.8%
Leonard Stein SVP Feb 18-Mar 5 25,000 Yes 87,774 shares + 145,528 options 9.7%
Nicholas Sturiale Director March 5 6,250 Yes 4,708 shares + 12,500 options 26.6%
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There have been 332,416 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 activity by calendar month.

Month Insider selling / shares Insider buying / shares
March 2014 234,064 0
February 2014 195,166 0
January 2014 278,556 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 3,204,666 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

Splunk reported the fiscal 2014 full-year, which ended January 31, financial results on February 27 with the following highlights:

Revenue $302.6 million
Net loss $79.0 million
Cash $897.5 million
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The seven insiders sold their shares after these results.

Splunk's revenue growth has been slowing down since 2012.

Outlook

Splunk's guidance is as follows:

Q1/2015 FY2015
Revenue $78-$80 million ~$400 million
Non-GAAP operating margin -8% to -10% ~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
Market Cap: 9.30B 14.24B 2.26B 192.99B
Employees: N/A 13,600 4,491 431,212
Qtrly Rev Growth (yoy): 0.53 -0.03 -0.03 -0.06
Revenue: 302.62M 4.58B 946.06M 99.75B
Gross Margin: 0.89 0.86 0.62 0.49
EBITDA: -68.76M 1.57B 125.98M 25.02B
Operating Margin: -0.25 0.31 0.10 0.20
Net Income: -79.01M 1.04B -12.32M 16.48B
EPS: -0.75 2.31 -0.06 14.94
P/E: N/A 13.75 N/A 12.40
PEG (5 yr expected): N/A 1.06 2.90 1.15
P/S: 30.19 3.08 2.39 1.90
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Splunk has the highest P/S ratio among these four companies.

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

Company Insider buying / shares Insider selling / shares
CA 0 99,399
CPWR

0

614,965
IBM 0 60,624
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Compuware has also seen intensive insider selling during the last 30 days.

Conclusion

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

Splunk has a $74 price target from the Point & Figure chart. I believe there is an opportunity for a short entry with the $74 price target. I would place a stop loss at $106, which is the all-time high. The four main reasons for the proposed short entry are a bearish Point & Figure chart, relatively high P/S ratio, negative earnings, and the intensive insider-selling activity.

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Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in SPLK 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.