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Sunday, May 28, 2023

STOCK – Internet Stocks Fall as Insiders Collect Their Millions

JoMei Chang and her husband Dale Skeen were finally able to cash in on some of their newfound $3 billion wealth last month.

With stock of Vitria Technology Inc., their Internet software company, having surged eightfold since going public in September, they sold $168 million in shares as part of a secondary offering arranged by Credit Suisse First Boston.

They were among executives, shareholders and officers of companies filing to sell a record $23.4 billion of stock in February, surpassing the $14.4 billion record set in January, according to the Washington Service, which tracks insider sales.

With more lockups expiring and Internet stocks soaring, those sales are set to surge, said Richard Schmidt, a former money manager who’s now editor of the Stellar Stock Report, which studies market risks such as sales by insiders.

“There are some huge profits out there that executives are sure going to want to take,” said Schmidt.

Companies whose lockups expire in March include Internet Capital Group Inc., whose shares surged to $110 from $6 at its August IPO. Executives, employees and others close to the company will be allowed to sell. They hold 35 million shares, Schmidt said.

This month, shareholders of NextCard Inc., an online credit card company, were freed to sell 28 million shares, as were the holders of 28 million Stamps.com Inc. shares. As a standard clause in an IPO contract, original investors in a company can’t sell stock for a set period, usually 180 days, after the IPO.


In February, about $40 billion in stock was freed for sale, Schmidt said. That compares with an average $20 billion a month in 1999 and $10 billion in 1998.

Companies whose lockups are scheduled to expire aren’t the only ones handing big returns to investors. Microsoft Corp., public for 15 years with a share price that continues to rocket, is constantly sold by insiders. Last month, Bill Gates, whose shareholding in Microsoft has made him the richest man in the world with a fortune of more than $85 billion, sold $153 million of shares. His co-founder Paul Allen sold $1.6 billion.

Shareholders in Sunnyvale, Calif.-based Vitria who didn’t sell stock in February’s follow-on offering were freed last week to sell shares for the first time since the September IPO.

It had proved a long wait: the stock had surged from $16 a share at IPO to $212 by the end of February. As the lockup expiry drew near, the stock began to slide and that downturn accelerated last week, when it was trading at around $110 a share.

Even so, “it’s a good opportunity to lock in a nice profit on their original investment,” said Vitria’s Chief Financial Officer Paul Auvil, who also sold stock, allowing him to put a deposit down on a new home in the Bay Area for himself, his wife and three children.

Market impact

The expiring lockups, along with about $27 billion worth of pending IPOs, may weigh on the broader market, Schmidt said.

“There’s just so much oversupply coming our way,” he said. That’s already helped push the Nasdaq Composite Index down 10 percent from its intraday record set March 10, he said.

IPOMaven.com, which tracks IPO lockup periods after IPOs, estimates 46 companies will be unlocked in March.

Waiting are shareholders in Williams Communications Group, a Tulsa, Okla.-based fiber-optic network operator. The holders of 395 million in shares will be freed later this month to sell their stock for the first time since the October IPO.

“They’ve got financial advisers; they’ve seen a strong market run,” Schmidt said. “They’re now looking at higher interest rates and a lot of other pressures on the market (which will drive people to cash in),” he said.

Foundry Networks Inc., which returned 13-fold in 1999 after its September IPO, will be free from lockup later this month, allowing owners of 11.5 million shares to sell. The shares last week were trading at about $151 a share, compared with their split-adjusted $12.50 IPO price.

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