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.