Netflix, Inc. (NFLX): Steady Selling

Page 1 of 2

As Netflix, Inc. (NASDAQ:NFLX) stock has soared in 2013, company insiders have been cashing in on their stock options and heading for the exits at an alarming rate. There are many reasons that a public company’s officers and directors might sell immediately after exercising stock options: They could be looking to supplement their cash earnings. They might need the money to offset tax liabilities. Or they may want to diversify their risks.

However, this behavior could also be a sign that insiders think their company’s stock has become overvalued. This year’s flood of insider selling at Netflix, Inc. (NASDAQ:NFLX) has been extreme enough that it is hard to attribute everything to “benign” motives. A more plausible explanation is that Netflix, Inc. (NASDAQ:NFLX) insiders haven’t bought in to the enthusiasm that has caused the stock to triple this year.

NFLX Chart

Netflix YTD Stock Chart, data by YCharts.

If Netflix insiders are skeptical of the stock’s recent run, other investors could run into trouble soon. If the company’s future growth falls short of Mr. Market’s expectations, the stock could easily drop by 50% or more as it did in 2011.

Steady selling
Netflix insiders have been exercising their stock options to cash in on Netflix, Inc. (NASDAQ:NFLX)’s rapid rise since early this year. For Q1, Netflix insiders exercised options for 556,819 shares of stock at a weighted-average price of $70.30 . By contrast, fewer than 200,000 options were exercised in all of 2012 due to the stock’s massive drop from its 2011 peak to the 2012 trough. Option exercises continued at a rapid pace last quarter, bringing the total for 2013 to just more than 1 million options exercised at an average price of $67.70.

Bailing out has been an equal-opportunity sport for Netflix insiders. Netflix, Inc. (NASDAQ:NFLX) CEO Reed Hastings stated early this year that he had options expiring every month beginning this summer, and that he planned to sell as the options hit their expiration dates . Sure enough, beginning in late June, Hastings has exercised options to buy 15,238 shares each month and immediately sold the stock, booking millions of dollars in capital gains each time.

Despite this selling, Hastings remains a major shareholder in Netflix, with more than 1 million shares held in trust. Thus, Hastings’ actions do not suggest that he expects Netflix, Inc. (NASDAQ:NFLX) to crash anytime soon. (That said, Hastings pointedly declined to comment about whether he was “comfortable” with the valuation of Netflix stock during the company’s Q2 earnings interview.)

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!