The lock-up pertaining to a large batch of Snap (NYSE: SNAP) shares expired on Monday. We're talking about nearly 800 million shares that were suddenly free to sell, so it's a wonder that shares held up so well. It was a rather busy trading day, with nearly 85 million shares changing hands, the heaviest volume in months.
We now know that a little over 745,000 of those shares were sold by executives.
Three execs filed Form 4 filings with the SEC yesterday to disclose the transactions, taking home a combined $9.3 million. None of these executives were able to sell shares during Snap's IPO, when co-founders Evan Spiegel and Bobby Murphy each sold 16 million shares. Early venture capital investors also unloaded quite a bit.
Monday was the first opportunity for these execs to cash out. The average price for all of these trades was approximately $12.50.
It's not too surprising (or concerning) for these execs to want to cash out after years of service. Khan joined the Snapchat operator in January 2015, poached away from Credit Suisse with a hefty pay package that included $145 million in stock. Snap hired Vollero in August 2015 from toymaker Mattel. Sehn has been with the company since September 2013, after spending 12 years at Amazon.com working his way up to a senior software engineering role.
It's all part of the plan
All of these transactions were part of Rule 10b5-1 trading plans that each executive had previously adopted. A Rule 10b5-1 allows company insiders to set up a trading plan ahead of time to sell a specified number of shares at specific times. In doing so, the insiders can avoid any possible allegations of insider trading, as the plans are put together while the insider does not have inside (material, non-public) information.
These plans are a very common way for insiders to cash out shares slowly over time. Given the tenure of these three executives, the sales don't jump out as a red flag. They've earned it.
What's less clear is whether or not other insiders or employees are planning on selling their newly freed shares. Spiegel and Murphy have committed to not selling any more shares for the remainder of the year (one would hope that they haven't blown through the $272 million that they each cashed out less than six months ago).
Beyond insider sales, investors should be more concerned with soaring stock-based compensation expenses, especially now that Snap is a public company. Restricted stock units that vest now are vesting at much higher share prices than when Snap was private, leading to much higher recognized expenses. Total stock-based compensation expenses last quarter were $242.4 million (compared to $4.7 million a year prior), representing nearly 40% of total costs and expenses in the second quarter.
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