Long time Readers know I am long Netflix over intermediate term from trading perspective. I had also correctly anticipated the short term consolidation that is currently underway, in prior posts including the most recent one. From a long term perspective, it is too rich right now but a terrific company to own should prices come down a bit.
But this post is about something different. This is about all the bearshitters like ZeroHedge who, using their negative bias, put what I believe an almost unethical spin on facts. Of course a lot of wise readers already know this about ZeroHedge and their deviations from facts. But there are times when it is tough to swallow the amount of spin coming out of simple and plain facts. The spin on NFLX CFO’s insider selling is one such incident where I couldn’t take it anymore. I am writing this to correct facts.
First the story.
Couple of days ago ZeroHedge website wrote about the selling of 100,000 shares by Barry McCarthy, CFO of Netflix. The article went on to hypothesize how insider selling such as this is a harbinger that the top insiders themselves are not confident about the stock. There were a few other website and twitterrers who publicized this exhaustively without giving details about the filing itself. This news caused a semi-panic with retail investors and trades who started selling. The sell-off was further exacerbated when Cramer said to sell half of the NFLX portfolio. Of course Cramer said it from a prudence point of view only. But it did not help either.
I myself believed the hype from a long term perspective, until I actually took the pain to investigate the SEC Form 4 filing. What I found was shocking at least to me.
Here it is for your pleasure, an exposure of another spin by ZeroHedge.
First here is the Form 4 filing link that covers the CFO’s sale. I have pasted some of the relevant parts as pictures below.
Notice the column highlighted yellow in Figure 1. This column depicts the amounts and foot-noted auspices under which the shares/options were processed. You can see that each amount is footnoted with the number “1″. This number stands for Transactions made pursuant to “Duly Adopted Trading Plan under Rule 10b5-1(c)” , as illustrated in Figure 2.
For those who don’t know what Rule 10b5-1(c) means, SEC made this administrative ruling where insiders could create a trading plan in advance of a trade if they set a specific date or price at which to effect a transaction (either a purchase or a sale); when that event transpired, it triggered the trade. These trading plans are known as 10b5-1 plans. The trigger could be a price threshold too.
I hope the dust is clearing from your eyes as we speak. If you are still with me, the obvious two conclusions are as follows:
- The CFO committed to this trade as part of a pre-set systematic method of selling shares that is very common for executives of any publicly traded company to do. He did NOT have any conviction in this sale in terms of lack of confidence. And of course he did not have any material information. This was a programmed sale.
- Notice that the sale was triggered when the stock hit $200. This is in fact the event that the CFO seems to have set as a criteria in the past, before November 30th , when setting up the trading plan under the 10b5-1(c) rule.
For those skeptics who have been saying this happened outside the regular insider trading window of NFLX, read your fundamentals. When a trading plan is set up under 10b5-1(c), because of its very nature of making insider information irrelevant, it can be carried outside of trading windows. Again a very common and regularly occurring phenomenon with most publicly traded companies.
Bottomline – I believe ZeroHedge fucked with many of you. The CFO insider sell is not at all a sign of lack of confidence but a prudent plan set up in advance to sell some of the shares when a threshold limit reaches.
11 Responses to NFLX –ZeroHedge Exposed!
Not long NFLX but this article is excellent. Great job and best of luck.
Great job fly. Underscores the emphasis to simply do your homework before you make a decision involving money
What’s the S&P up since ZeroHedge was created? 40% LOL
great work SR. so what your saying is that the cfo had his own stops put in place.when it kicked in ,it was sold. so how do people, willy-nilly come up with the notion that the stock is in trouble cause an exec sold some shares. do these sites do this on purpose,or dont know how to cover their DD.hell,could of been a nice call contract after todays action. one would think that, now they have secured movies right after a release,should have propelled it even more,no.
I believe that it is common knowledge that insiders at the director level do not manage their own trades. SOX-404 took care of that…
Zero Hedge has been bearish on the world since s&p 666, so by comparison, this NFLX thing is nothing.
Very Insightful. Thanks!
Chivo, Butcher, Drummerboy, Dry, thanks. Colonel, my point here is that inspite of this being common knowledge, doing some home work before believing in doomsday oriented naysayers is very important. You will not believe how many people retweeted or referenced ZeroHedge’s article without really digging into whether he was twisting some of the facts.
Nice post. Thanks.
This morning, literally every one who could get a hand on it, retweeted an “@alleyinsider” post that read “Amazon Working On A Subscription Video Package To Slow Netflix”. It was linked to its summary of a WSJ article. The actual Wall Street Journal article is linked here – http://online.wsj.com/article/SB10001424052748704493004576001781352962132.html.
Compare the two articles and come to your own conclusions!
I enjoy, lead to I found exactly what I used to be taking a look for. You have ended my four day long hunt! God Bless you man. Have a great day. Bye