Will Tech
Insiders Snub Their Noses At Low Prices?
by Bob Gabele
Editor, Insiders' Chronicle
That
restricted stock sales skyrocketed in the months leading up to
the latest market sell-off should come as old news to Insider's
Chronicle subscribers. It's a subject we've touched on repeatedly,
going back almost to the beginning of the year. Now that the
story has gotten some serious mainstream coverage, it's worth
stressing a few points. First, though executive officers and
directors were undoubtedly involved, in no way is it clear that
we witnessed a dramatic, across the board ramp in "true"
insider selling. To the contrary, we have maintained all along
that much of the selling was attributable to "outside"
early investors, and was more than anything an upshot of an unprecedented
IPO market.
This is not to say
that it didn't have its effect. Nor is it to say that insiders
did not take profits, especially in the high-flying tech stocks.
They did. To all but the historian, however, this too must seem
old news. Of much greater relevance is what technology insiders
have been doing since the initial break. A preliminary look at
April's Form 144 filings implies that while restricted stock
sales may have slowed a bit, they remain robust. At the same
time, we are seeing signs of insiders at a number of technology
issues thinking twice about selling at post-crash prices.
Particularly striking
are cases where chronic option-related sellers have taken a break
(at least temporarily) from offering up their shares. Yet more
intriguing are those cases where insiders have continued to exercise
options, but have broken from their normal pattern of selling
the acquired shares. At Exodus Communications Inc. (EXDS), for
example, three insiders exercised options to acquire a combined
220,999 shares. Unlike in the past, however, where Exodus insiders
habitually sold shares acquired in this manner, there is no evidence
that they have done so in this instance.
Similar stories appear
to be unfolding at Banyan Worldwide Inc. (BNYN) and even at Internet
infrastructure provider Infospace Inc. (INSP). At Banyan, two
insiders exercised options to acquire a combined 60,000 shares
in early March. Infospace insiders have been even more aggressive,
with four acquiring nearly 100,000 shares since the sell-off
began. To this point, there is no evidence that these insiders
have sold the underlying shares. ISP Earthlink Inc. (ELNK) and
data storage device manufacturer Network Appliance, Inc. (NTAP)
have similar profiles.
Of course, these are
individual examples. There is absolutely no assurance that the
behavior of these insiders is representative of the technology
group in general, or that it will persist going forward. Only
time can tell whether tech executives will turn their noses at
the new, reduced share prices. You can almost bet that with their
low entry points and characteristic lack of sentimentality, venture
cap types will continue to dump shares on the market. For our
part, we will be eagerly watching to see the degree to which
"true" tech insiders opt to pick their own exit points.
Editor's Note: Bob
Gabele is managing director of Insider's Chronicle, 1455
Research Blvd., Rockville, MD 20850. 1 year, 50 issues, $315.
Visit the Web site: www.cda.com/investnet.
