B2B insider selling may signal lack of faith
Despite the recent downturn in Internet-related stocks, executives are selling their shares in significant numbers, a move that raises questions.
Insider selling even surfaced in a few prominent business-to-business companies, a market that investors are watching closely as stocks trade well below their highs.
At Ariba, for example, nine executives sold a total of nearly 2.1 million shares from May 2-31 at prices between $52.14 and $82. The sales occurred while shares of Ariba, a provider of software that tracks and manages supply purchases over the Internet, were down approximately 55 to 70 percent from March's all-time high of $183.34.
Chief executive Keith Krach sold 600,000 shares, the sixth-largest insider sale ever at the company. Senior vice president of strategic development Robert Lent and senior vice president of corporate strategy Paul Touw sold 300,000 shares each, and chief financial officer Edward Kinsey sold 142,792 shares.
Ariba's initial public offering last June closed at about $18 on the first day of trading. The stock subsequently skyrocketed more than 900 percent to an all-time high in March. Insiders actively took profits along the way, selling from October through February of this year.
Many of the executives who sold shares in May also sold shares earlier during the year, which raises questions: Why did they sell again, so soon after they last sold shares? Why did they sell at such significantly lower prices than before?
Insiders commonly sell shares to make a profit, diversify their portfolios, or fund expenses. But shareholders should be wary if executives sell when the shares are priced low.
Similar insider activity occurred at Commerce One, a provider of Internet software that links buyers to suppliers of business goods and services. Nine Commerce One executives sold a combined 876,900 shares between April 24 and May 22 at prices ranging from $40.62 to $64.38. During this time, the company's stock had already fallen significantly from March's all-time high of $165.50. Shares had also improved from mid-April's $33, this year's low.
The recent sellers included CEO Mark Hoffman and CFO Peter Pervere, who liquidated 100,000 and 50,000 shares, respectively. Chief technology officer Thomas Gonzales and general counsel Robert Tarkoff sold 402,500 and 10,000 shares, respectively.
As in the case of Ariba, some of the recent Commerce One sellers also participated in the profit taking earlier in the year when shares traded at much higher levels.
At Keynote Systems, a provider of Internet performance management services to e-commerce companies, insiders began selling just one day after the May 17 IPO lockup expiration date. Five executives unloaded a total of 242,000 shares from May 18-31 at $34.38 to $43.50 per share. They sold despite the stock's greater-than-75-percent plunge from late-February's $177 high.
Ever since the recent fallout in Internet and technology-related stocks, investors have been looking for a possible market recovery. At such depressed stock prices, I'd hope to see insiders displaying confidence in the long-term viability of their companies by increasing their stakes. Unfortunately, that has yet to be seen.