Insider Weekends: Satya Nadella Sells Half His Microsoft Shares

Corporate insiders rang the bell on the market almost three weeks ago with elevated levels of insider selling that has far exceeded anything we have seen in well over a decade of tracking insider transactions. The level of insider selling is elevated even after we adjust for mega multi-billion dollar sales by Jeff Bezos and Elon Musk. Since November 8, Mr. Musk has sold 9.5 million shares at an average price of $1,077, generating $10.2 billion from those sales. A third insider of a trillion dollar market cap company joined the selling spree last week with Microsoft (MSFT) CEO Satya Nadella selling almost exactly half of his shares over a two day period. These sales were not related to an options exercise or an established 10b5-1 plan and were his largest sales of Microsoft in more than 10 years.

On the buying side, after a nearly two month hiatus, Facebook co-founder and the CEO of Asana (ASAN) Dustin Moskovitz is back at it again, buying $37 million worth of Anana stock last week. He has been a very active buyer this year, buying stock numerous times under a 10b5-1 trading plan.  I used to think Asana was mostly a project management software company but over the last few years the company has moved into adjacent markets such as marketing automation and sales management, the domain of companies like Hubspot (HUBS) and Salesforce (CRM).

At one-fourth the revenue of a company like Hubspot, Asana commands as much as half of Hubspot’s market cap because Asana is growing much faster. Revenue for fiscal Q2 2022 was up 72% year-over-year to $89.5 million and revenue for enterprise customers spending more than $50,000 grew 111% y-o-y. The company’s gross margins are improving, approaching nearly 90% and free cash flow is trending in the right direction, albeit still negative.

We wrote the following about Asana in late June,

Dustin Moskovitz is one of the co-founders of Facebook, making him the youngest self-made billionaire in history in 2011.  He co-founded the productivity software company, Asana, in 2008 and the company went public through a direct listing on September 30, 2020. The “reference price” for the direct listing was $21 and it closed its first day of trading at $28.80. It has more than doubled from that first day close to $62.73.

While it is unusual for insiders of a newly public company to buy shares as we highlighted with the Bumble purchases, it is even more unusual to see an insider buy shares multiple times though a defined trading plan (a 10b5-1 plan) as we have seen with Mr. Moskovitz since June 2021. The stock is already up more than $20 a share since he started buying shares. Asana’s market cap is a little over $10 billion and Mr. Moskovitz’s net worth is estimated to be over $21 billion.

There are many productivity software companies out there including Monday.com, Smartsheet (SMAR) and Atlassian (TEAM). I was an early adopter of Smartsheet (before Office 365 made Excel online a viable competitor), have held Atlassian shares for several years and nearly two decades ago wrote most of the code for an online project management module in an enterprise software application that is still in use. The barriers to entry appear low from the outside but the highly competitive nature of this industry makes it difficult for new entrants to gain enough traction to unseat incumbents unless the product is sufficiently unique or there is a lot of capital backing the company.

This Twitter thread by the CEO of a company that was an Asana competitor provides a fascinating inside look into just how competitive this little area of the software industry can be. The thread is long but the screenshot below is the money shot as it relates to Asana and Mr. Moskovitz.

Given the nature of this little niche and Asana’s valuation (31 times estimated 2021 sales), I would prefer to watch how the Asana story unfolds from the sidelines despite Mr. Moskovitz’s enthusiasm for the stock.

While Asana has a long runway ahead of it, I think valuations across the SaaS sector are extremely stretched. Several years ago, I had built a model for a SaaS company in my portfolio and the price has generally stayed somewhere between my base case and bull case scenarios. However in recent months, the stock has trended well above my bull case. It does not matter how I attempt to value the company, valuation looks extremely stretched. I know it is no longer fashionable to attempt to value a company on traditional metrics but when it becomes hard to value the company at a reasonable multiple even looking out a decade, something is not quite right.

Nearly two weeks ago, in our mid-month update titled A Time For Caution, we wrote the following,

Insiders are once again signaling to us that valuations are stretched with insiders selling $6.65 billion worth of stock two weeks ago and an additional $10 billion worth of stock last week. These sales were elevated even if remove a $3.3 billion sale of Amazon (AMZN) by Jeff Bezos and a $6.9 billion sale of Tesla (TSLA) by Elon Musk. This signal from insiders coincides with the Fed tapering its bond purchase program, rising inflation that does not appear to be transitory, investment activity in private companies that can be best described as euphoric and a big jump in the number of SPAC IPOs.

I decided to mine the InsideArbitrage database of SPAC IPOs to see if we were similarly seeing an increase in SPAC activity and the table below outlines how both the number of SPAC IPOs and the value of those IPOs has nearly doubled in 2021 compared to the full year 2020, which in itself was a record year for SPAC IPOs.

SPAC IPOs 2019 to Nov 14, 2021 (source: InsideArbitrage database)

I am not a perma-bear and neither is this a call to sell everything and head for the hills. In fact we have been actively investing in the InsideArbitrage Model Portfolio after writing about a new idea every month and the portfolio has generated gains of over 30% despite several merger arbitrage positions and a sizable cash position while we built the portfolio over the last 16 months. However with multiple bubbles brewing simultaneously in public markets, private markets, real estate and crypto currencies, this is a time for caution.

While attempting to time the market may be futile, it may be prudent to adjust the risk profile of the portfolio while the exits are still open and either scale back positions or add protection through put options.

Welcome to edition 595 of Insider Weekends. Insider buying increased last week with insiders purchasing $228.13 million of stock purchased compared to $150.59 million in the week prior. Selling decreased to $4.55 billion compared to $7.55 billion in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week dropped to 19.94. In other words, insiders sold almost 20 times as much stock as they purchased. The Sell/Buy ratio this week was favorable compared to the prior week when the ratio stood at 50.13.

Notable Insider Buys:

1. Asana, Inc. (ASAN): $106.02

President, CEO, & Chairman Dustin A. Moskovitz acquired 371,928 shares of this work management platform, paying $100 per share for a total amount of $37.19 million. Mr. Moskovitz increased his stake by 7.13% to 5,589,676 shares with this purchase.

You can view the list of recent insider transactions for here.

P/E: N/A	Forward P/E: N/A	Industry P/E: 61.85
P/S: 54.76	Price/Book: 69.75	EV/EBITDA: -88.38
Market Cap: $19.50B	Avg. Daily Volume: 2,026,823	52 Week Range: $25.41 – $145.79

2. Guardant Health, Inc. (GH): $106.92

Shares of this precision oncology company were acquired by 2 insiders:

• Co-Chief Executive Officer Helmy Eltoukhy acquired 104,500 shares, paying $96.15 per share for a total amount of $10.05 million. Mr. Eltoukhy increased his stake by 5.64% to 1,956,186 shares with this purchase.
• Co-Chief Executive Officer Amirali Talasaz acquired 104,500 shares, paying $96.12 per share for a total amount of $10.04 million. Mr. Talasaz increased his stake by 5.97% to 1,853,845 shares with this purchase.

You can view the list of recent insider transactions for Guardant Health, Inc. here.

P/E: N/A	Forward P/E: -31.72	Industry P/E: 22.15
P/S: 31.22	Price/Book: 15.32	EV/EBITDA: -28.92
Market Cap: $10.11B	Avg. Daily Volume: 1,010,633	52 Week Range: $91.19 – $181.07

3. PennyMac Financial Services, Inc. (PFSI): $65.04

Director Farhad Nanji acquired 282,872 shares of this mortgage finance company, paying $64.35 per share for a total amount of $18.2 million. These shares were purchased indirectly by MFN Partners, LP.

You can view the list of recent insider transactions for PennyMac Financial Services, Inc. here.

P/E: 3.6	Forward P/E: 5.09	Industry P/E: 7.32
P/S: 0.98	Price/Book: 1.12	EV/EBITDA: N/A
Market Cap: $3.84B	Avg. Daily Volume: 605,136	52 Week Range: $55.11 – $70.99

4. Ault Global Holdings, Inc. (DPW): $1.8

Executive Chairman Milton C. Ault III acquired 2,610,000 shares of this power system solutions manufacturer, paying $1.92 per share for a total amount of $5.02 million. These shares were purchased indirectly by Ault Alpha GP LLC.

You can view the list of recent insider transactions for Ault Global Holdings, Inc. here.

P/E: N/A	Forward P/E: N/A	Industry P/E: 42.52
P/S: 2.85	Price/Book: 0.57	EV/EBITDA: -29.01
Market Cap: $147.46M	Avg. Daily Volume: 4,742,893	52 Week Range: $1.73 – $7.99

5. Establishment Labs Holdings Inc. (ESTA): $66.41

Director Edward J. Schutter acquired 65,027 shares of this medical technology company, paying $69.21 per share for a total amount of $4.5 million. Mr. Schutter increased his stake by 27.84% to 298,562 shares with this purchase.

You can view the list of recent insider transactions for here.

P/E: N/A	Forward P/E: N/A	Industry P/E: 48.16
P/S: 13.38	Price/Book: 25.88	EV/EBITDA: -78.56
Market Cap: $1.59B	Avg. Daily Volume: 78,756	52 Week Range: $0 – $0

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Tesla, Inc. (TSLA): $1081.92

CEO Elon Musk sold 1,242,785 shares of Tesla for $1,121.33, generating $1.39 billion from the sale.

You can view the list of recent insider transactions for Tesla, Inc. here.

P/E: 353.34	Forward P/E: 132.43	Industry P/E: 26.64
P/S: 23.19	Price/Book: 40.15	EV/EBITDA: 148.9
Market Cap: $1.09T	Avg. Daily Volume: 24,761,944	52 Week Range: $539.49 – $1243.49

2. Microsoft Corporation (MSFT): $329.68

Chief Executive Officer Satya Nadella sold 838,584 shares of Microsoft for $340.26, generating $285.34 million from the sale.

You can view the list of recent insider transactions for Microsoft Corporation here.

P/E: 36.88	Forward P/E: 31.31	Industry P/E: 61.85
P/S: 14.04	Price/Book: 16.29	EV/EBITDA: 28.27
Market Cap: $2.48T	Avg. Daily Volume: 23,815,861	52 Week Range: $209.11 – $349.67

3. Roblox Corporation (RBLX): $122.65

Shares of Roblox were sold by 7 insiders:

• President & CEO David Baszucki sold 937,500 shares for $124.87, generating $117.07 million from the sale. These shares were sold indirectly by various trusts.
• Chief Financial Officer Michael Guthrie sold 128,627 shares for $125.34, generating $16.12 million from the sale.
• Chief Technology Officer Daniel Sturman sold 80,000 shares for $120.80, generating $9.66 million from the sale.
• Chief Product Officer Manuel Bronstein sold 30,354 shares for $124.06, generating $3.77 million from the sale.
• Principal Accounting Officer Brett Tolley sold 25,201 shares for $134.91, generating $3.39 million from the sale.
• Chief Marketing & People Experience Officer Barbara Messing sold 20,000 shares for $135.00, generating $2.7 million from the sale.
• Chief Business Officer Craig Donato sold 6,853 shares for $122.19, generating $837,337 from the sale.

You can view the list of recent insider transactions for Roblox Corporation here.

P/E: N/A	Forward P/E: -161.38	Industry P/E: 143.27
P/S: 42.76	Price/Book: 119.54	EV/EBITDA: -240.6
Market Cap: $70.99B	Avg. Daily Volume: 14,002,317	52 Week Range: $60.5 – $141.6

4. The Carlyle Group Inc. (CG): $54.75

Director Daniel A. D’Aniello sold 1,500,000 shares of this investment firm for $58.05, generating $87.08 million from the sale.

You can view the list of recent insider transactions for The Carlyle Group Inc. here.

P/E: 7.08	Forward P/E: 13.62	Industry P/E: 15.29
P/S: 2.35	Price/Book: 4.1	EV/EBITDA: 6.3
Market Cap: $19.52B	Avg. Daily Volume: 2,061,169	52 Week Range: $28.12 – $60.62

5. Charter Communications, Inc. (CHTR): $672.87

Chairman and CEO Thomas Rutledge sold 88,000 shares of this cable services provider for $674.82, generating $59.38 million from the sale.

You can view the list of recent insider transactions for Charter Communications, Inc. here.

P/E: 30.66	Forward P/E: 21.33	Industry P/E: 18.37
P/S: 2.36	Price/Book: 7.08	EV/EBITDA: 10.71
Market Cap: $120.64B	Avg. Daily Volume: 918,166	52 Week Range: $585.45 – $825.62

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.

Disclaimer: Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.