Why This Facebook Insider Sale Doesn't Matter

Mike is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Insider transactions can tell the ordinary investor if the management has faith in the future of the company.  However, not all insider transactions are meaningful.  There are two ways that these transactions can be meaningful for the stock price: the transaction is a decent percentage of the buyer /seller's net worth, or the transaction is a large percentage of the daily volume.  When Sheryl Sandberg, the COO of Facebook (NASDAQ: FB), sold some of her shares it made headlines, but does it mean anything to a Facebook stockholder? 

First of all, Sandberg is an influential employee of Facebook, especially after getting on the board of directors earlier this year.  Sandberg previously worked for Google (NASDAQ: GOOG) as the VP of Online Sales and Operations.  She was there from 2001 to 2007, and in that time, Google stock went public in 2004 and shot up almost 600%.  Within those years, Google created popular products like Gmail and Google Docs.  Sandberg led the team to increase sales in online advertising which is known today as Adwords.  Adwords makes up a substantial part of Google's revenue today. Although this was a high position in Google and Google is known for excellent wages and employee benefits, Sandberg was wooed by Zuckerberg to move to his quickly growing company.  Her top goal once joining Facebook was to make it profitable with those little ads on the right hand side and throughout the newsfeed.  In 2010, the company became profitable, and in the last 12 months they profited over a billion dollars.

Now that lockups are expiring, many insiders are able to sell shares.  Sandberg's sale of 353,000 shares on Oct 31 seems large but compared to her net worth it is nothing.  According to the SEC Form 4, Sandberg has 20,006,340 Facebook shares after the transaction.  This stake is worth over $425 million.  So her measly $7.4 million sale was nothing.  It was probably made so she could add a small addition to her house.  Looking at the transaction in proportion to her net worth, the Facebook investor has nothing to worry about.

When comparing the transaction to the daily volume on Oct 31, the sale likely had no effect on the stock price.  On Oct 31, the volume was 99,378,200 compared to the 353,000 sold by Sandberg.  Her sale wasn't even 0.5% of the daily volume.  The stock price did decrease that day but unlikely due to Sandberg.

Until Sandberg and other insiders start selling off large portions of their positions, investors shouldn't worry about management selling portions of stock.  Mark Zuckerberg would likely have the most influence if he sold off a portion of his position but he has stated that he will wait until September 2013 until he sells anything.  It is never great to see execs selling their stock but if it is a small sale in relation to her their stake in the company and the stock's daily volume, the sale should not affect the stock in a meaningful fashion.

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mthiessen has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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