Insider Selloffs Busted the Tech Bubble

Insiders at Facebook, Google and LinkedIn have been selling shares in their companies lately. The valuations were high enough to beggar even their belief.
Nice timing, Sheryl Sandberg. Photographer: Tomohiro Ohsumi/Bloomberg

When executives sell stock in the companies they run, it's not necessarily a bad sign. They may need cash to pay taxes, buy a new home, make a charity donation. That said, insiders in some big-name tech companies unloaded a lot of shares ahead of the recent tumble in tech stocks.

Facebook Inc.'s chief operating officer, Sheryl Sandberg, has sold $89.8 million worth of the company's shares since the beginning of this year, according to Securities and Exchange Commission filings. Chief Technology Officer Mike Schroepfer unloaded $13 million worth. At Google Inc., Executive Chairman Eric Schmidt reaped $111.7 million in January and February; founders Larry Page and Sergei Brin realized $98.9 million and $95.4 million, respectively. LinkedIn Corp. Chief Executive Officer Jeff Weiner sold $39.5 million worth of stock in the first three months of the year, while co-founder Reid Hoffman made $76.6 million. In all cases, the executives sold more than they typically do.

The sales all proved well-timed. Facebook is down 21 percent since March 10, when it started falling. Google is down almost 20 percent since March 6. LinkedIn is down 21 percent since March 6. Insiders who failed to sell -- including executives at Netflix Inc., Priceline Group Inc. and Twitter Inc. (the latter of which has restrictions on large sales until May) -- missed an opportunity to get some cash out at the best possible moment, while retaining substantial holdings in their companies' stocks.

Tech insiders don't need privileged information to realize that their companies' stocks are expensive. What experienced manager can believe that a company should be worth hundreds of times its earnings, like LinkedIn, almost 100 times earnings, like Facebook, or even 30 times, like Google, when Apple Inc.'s price-to-earnings ratio is about 13 and Microsoft Corp.'s fluctuates around 15? Whatever strategies the executives might have for future growth, the valuations beggar belief. Investing in these stocks is like playing roulette: Their movements depend on supernatural forces and not much else.

Microsoft and Apple, for their part, survived the correction unscathed. Neither of their chief executive officers -- Satya Nadella and Tim Cook, respectively -- reduced their holdings, although Bill Gates continues with his long-term plan to sell down his Microsoft stake. For these CEOs, selling at current valuations would indeed signal a disbelief in their own powers. In the cases of Schmidt, Sandberg and Weiner, it just means they feel the market has been wildly overenthusiastic, and they are absolutely right.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.