Insider Selling at Yahoo: Should Investors Worry?

Last week an SEC filing revealed insider selling by Yahoo! (Nasdaq: YHOO) CEO Marissa Mayer.
The filing reported that Mayer, one of the most powerful women in business, sold 36,000 shares of Yahoo. With an average selling price of $40 per share, that means Mayer’s before-tax proceeds were $1.44 million.
However Mayer isn’t dumping stock blindly. And she isn’t really “dumping” stock.
The same day she sold those 36,000 shares she also converted 36,000 stock options to buy shares at a price of $18.87. That means she bought shares at $18.87 and sold them at $40 later the same day.
It used to be that insider selling was clearly a bad sign. And while it is always a good reason to dig deeper, it is very rarely a warning for investors to panic and sell their shares.
As with many insider transactions, there are multiple ways to spin the story. Here’s one:
“Young CEO sells $1.44 million worth of company’s stock.”
But while $1.44 million seems like a lot of money to most of us, it really isn’t for Marissa Mayer. Here’s another headline that describes the same situation.
“CEO sells just 1.5% of stock in her company.”
That’s right, Marissa Mayer’s sale of $1.44 million in Yahoo stock represented only 1.54% of her Yahoo holdings. She still holds 2,296,569 shares of Yahoo, worth more than $94 million as of Thursday’s close. She also holds 3,431,300 options to buy Yahoo shares well below market prices.
Which headline seems scarier, the one describing $1.44 million of insider selling by a CEO or the one describing a CEO that sold just 1.5% of her company’s stock?
Obviously the latter description, which gives context to the insider selling, is less concerning. And context is everything.
In the case of Marissa Mayer’s insider selling, I see no cause for concern. In fact Mayer, like most corporate insiders, has been very methodical with her insider selling.
These days there are so many restrictions on how and when company insiders can buy or sell shares that most set up a regular schedule and let it run on autopilot.
Marissa Mayer is no different.
Yahoo’s CEO has completed a total of 18 transactions in 2014, each a sale of 36,000 shares. In an effort to tie stock performance to compensation, many CEOs are paid largely in stock these days.
Again, Marissa Mayer is no different.
It is estimated that Mayer made $214 last year but only $4.3 million of it was in cash. We get to $214 when you include the $35 million in stock and $21 million in options that she received when she signed on as Yahoo’s CEO. With Yahoo stock price appreciation this is estimated to have grown to $186 million in 2013. Mayer also received $23.7 in stock grants throughout the year.
That brings us to Mayer’s whopping total compensation of $214 million. But, again, only $4.3 million was in cash. The rest came in the form of stock or options, requiring Mayer to sell the stock in order to actually have access to the money.
And since Mayer is the company’s CEO, all of her transactions are reported as insider transactions. That’s why we saw attention-grabbing headlines last week such as “Insider Selling: Marissa A. Mayer Unloads 36,000 Shares of Yahoo! Stock.”
The reality of Marissa Mayer’s insider selling is that this is her way of receiving a salary. In addition to her cash compensation from Yahoo, Mayer has been methodically converting her stock options to shares and selling those shares.
Despite selling almost $24 million of Yahoo stock so far in 2014, I remain confident that her insider selling is nothing more than a powerful tech CEO drawing a paycheck and not a cause for concern.
What do you think?

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