Investors get nervous when a large shareholder of a company sells stocks. When that shareholder is also the company's Chief Operating Officer, they get really nervous. And, when that COO sells half of her stake in the company, they get really, really nervous.
Such is the case with Facebook, where COO Sheryl Sandberg has sold $398 million worth of shares since the company went public in May 2012. Regulatory filings show Sandberg sold a net 2.9 million shares in the past six months, taking in $155.6 million. Most of her sales were pre-planned, a setup intended to prevent insider trading for key executives. And, a chunk of the proceeds were used to pay taxes.
However, the remaining shares she has – about 0.5% of the total company – are worth just under $1.1 billion so it's not like Sandberg has cleaned out her Facebook portfolio.
Meanwhile, the guy who, er, sorta came up with the idea of Facebook, Mark Zuckerberg, also sold some shares of Facebook in December – 41.35 million of them for $2.28 billion. Like Sandberg, he used some of that money to pay taxes on the 60 million shares he bought for $0.06 a share in 2013. Zuckerberg had taken in $1.13 billion when the company went public in May 2012. However, he still has 21.6% of the company.
However, Sandberg's stock sale is one that CNBC contributor Andrew Busch, editor and publisher of The Busch Update, believes investors should take note of.
"It leads one to believe that you should be a little bit nervous here, a little bit concerned about Sandberg because she was the adult that was brought in to help run Facebook," says Busch. "They've obviously had tremendous success with her. But, I wonder what the conversation was about buying WhatsApp. Was that an agreed-upon thing between those two or was there a schism there that may have led her to sell?"
Busch is referring to Facebook's recent $16 billion acquisition of mobile application WhatsApp. As well, Facebook also just paid $2 billion for Oculus VR, a company that has neither revenue nor product.
"I'm still very cautious on social media right now," says Busch.
(See: CNBC's Social Media coverage)
Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, also notes the importance of a sale of stocks by Facebook's COO.
"Sheryl Sandberg selling some stock is not like your typical individual investor selling 500 or 1,000 shares of Facebook – let's just get that straight," says Ross. "But, when you look at the technicals, you can see that we're at a very critical inflection point here, whether you own 1,000 or a million shares of Facebook."
Ross sees the stock has having traded in a well-defined trend channel for the past nine months. Half a year ago, Facebook shares saw a 20% pullback and a subsequent rebound. He notes that since March, Facebook once again saw a 20% drop to the lower-end of a trend channel which coincides with the 100-day moving average, currently at $58 per share.
"If we can hold in here, the uptrend could resume in earnest," says Ross. "But, a break below $60 or even $58, I don't think you want to be an owner of this stock."
To see the full discussion on Facebook with Busch on the technicals and Ross on the fundamentals, watch the video above.
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- Sheryl Sandberg