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Insider Selling at Microsoft

By Edited Nov 13, 2013 0 2

Microsoft has two relatively new product lines. One of them is cloud computing. It basically furnishes computing and storage on the Internet. While that product is becoming more popular, the category has Microsoft properly become a of the leaders. Another item to mention is Xbox's Kinect, which is based on a webcam for the Xbox console. Players use it to control and interact with the console without having the need to touch a game controller. Instead, associated animation on the screen is play based on the gestures and spoken commands to control some games. Kinect is competing with the Playstation Move and Wii games as Microsoft is also a leader in selling video game systems and accessories. Despite having these two products, Microsoft is still having trouble pleasing their shareholders. [1]

A focus of investor frustration was CEO Steve Ballmer's recent sale and his statement that he intended to keep selling through the end of the year. [2]

Bill Gates annually sells numerous shares of Microsoft to fund the Bill and Melinda Gates Foundation, his worldwide philanthropic. During the 2010 annual shareholder day Webcast, one investor complained to Gates for not helping out Microsoft shareholders when he sold shares that did not reduced active share count. He instead sold his shares into the open market. [2]

A second frustrated investor asked CEO Steve Ballmer and Gates why they didn't divide the corporation up so value can be generated by having the sum of the parts be a greater amount than the value of the Redmond, WA-based company itself. That idea is also having support from a Goldman Sachs analyst. Ballmer discounted that strategy because he feels more time is needed to understand the value not yet embedded in shares. [2]

Microsoft shares could use a little thrust as it is being stalled. Bill Gates certainly could help out by selling his shares that could be beneficial for shareholders. Gates responded to the displeased investor by stating that his Foundation and its causes deserves the wealth more than Microsoft shareholders. He doesn't have concerns to reduce its outstanding share. The price of the stocks has been floundering in the 20s for a lengthy time. [2]

The first week of November in 2010 saw the highest level of insider selling within the S&P 500 companies in several years. Investors read into the heavy insiders selling an indication that stocks are excessively desirable. The three major market indexes were back to August 2010 levels. Numerous stocks were at multi-year highs before the heavy insider selling seems to be now foresighted, if not just lucky. [3]

For several years Microsoft had the largest insider selling among the S&P 500 universe of companies. Thus, it's not shocking for the corporation to do it again in 2010. What made people talk about Microsoft was the CEO, Steve Ballmer announced he would sell up to 75 million shares before the end of 2010. He already sold 49.3 million shares (12% of his shares) at a value of approximately $1.3 billion. He sold more on November 12, 3.2 million shares (1% of his shares) for about a total of $84 million. He still have 22.5 shares left to sell to reach his 75 million insider sales target before the year 2010 is over. [3]

Every quarter Bill Gates sells 20 million shares to assist with the funding of his foundation. It is his insider selling that makes Microsoft the biggest insider seller among S&P 500 corporations year in and year out. [3]

Steve Ballmer responded during Microsoft's shareholder meeting webcast in November or December 2010 to the criticisms about insider selling saying that the shares being sold by insiders don't have a factor in the stock price because they only consist very small percentage of all the shares held by all shareholders. On the contrary, investor dubiety about insider sales isn't about the impact on stock price. When the top executive of a company sells some of his/her shares, then the investors would feel like the company isn't looking towards a more bullish outlook. [3]

If Steve Ballmer is really telling the truth about his reasons to sell a big chunk of his Microsoft shares, then let it be known that he chose to proclaim the sale during the best time to release bad news - after the market closes for the weekend. That should make some people doubt his reasons that he stated to sell. [3]

Gates and Ballmer are still the number one and number two shareholders for Microsoft after their transactions occurred in November 2010. [3]

The year 2010 has been the largest in recent memory for share repurchase activity among S&P 500 companies. Microsoft's 2010 annual report for the period ended June 30 disclosed that it had repurchased 380 million shares (almost $11 billion in activity). [3]

Microsoft shares could use a little thrust as it is being stalled. Bill Gates certainly could help out by selling his shares that could be beneficial for shareholders. Gates responded to the displeased investor by stating that his Foundation and its causes deserves the wealth more than Microsoft shareholders. He doesn't have concerns to reduce its outstanding share. The price of the stocks has been floundering in the 20s for a lengthy time. [3]

The debate about insider sales has academic economists who claim they can prove that there is no parallel between such sales and corporate managers calling out the peak of the shares. It is provident that executives diversify their portfolios by avoid being the most concentrated shareholders in their own companies' stocks. [3]

Insiderscore.com mentions that Steve Ballmer's transaction was more about being a top news story than a chance to inform the public about the selling. According to the insider sales tracker, if he completes his plan of selling up to 75 million shares, his value of his decreased number of shares would be about $9 billion. That is enough for him to continue to be the second-largest shareholder for Microsoft. Furthermore, he receives an average of $1.3 million annually as cash compensation. Ballmer doesn't receive option grants or stock awards; so, sometime in the future he will likely have the desire or need to sell more stock. If some people are thinking timing is an issue, it's not judging by Microsoft's stock action and the record quarterly revenue and earnings-per-share reported on October 28, 2010. [3]

The consensus at The Street is to give Microsoft more time for its stock price to perk up. More than two-thirds of analysts rate Microsoft shares a buy, while one-third rate it a hold. Also, for the full year 2010 and 2011, Microsoft had its recent earnings revision being bullish by 27 analysts since its third quarter report for 2010 came out on September 30. Yahoo! Finance has a total of 26 analysts that regard Microsoft stock a buy, which I verified by going to the webpage on December 27, 2010. [3 - 5]


References:

[1] http://seekingalpha.com/article/238826-microsoft-and-oracle-two-great-value-companies?source=article_lb_author_1_t
[2] http://www.thestreet.com/story/10932135/3/hold-microsoft-investors-say.html
[3] http://www.thestreet.com/story/10924299/1/ballmer-gates-sell-microsoft-should-you.html
[4] http://finance.yahoo.com/q/ks?s=MSFT+Key+Statistics
[5] http://finance.yahoo.com/q/ao?s=MSFT+Analyst+Opinion


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Comments

Jan 4, 2011 10:59am
aguy
Interesting.
Jan 4, 2011 9:17pm
freedomw
Thank you for reading and commenting on my article, aguy.
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