Microsoft (NASDAQ: MSFT) recently became a hot topic after CEO Satya Nadella sold more than half of its shares for around $ 285 million on November 22-23. 830,791 shares.
Should investors be worried about this massive sell-off? Let’s go back to Nadella’s accomplishments, compensation, and past stock sales to decide.
How Nadella Became Microsoft Again As A Growth Stock
When Nadella became Microsoft’s third CEO in 2014, the tech giant was in serious trouble. New cloud based services were disrupting his office software, his Windows users stubbornly stuck to older versions of the operating system, and he had lost the mobile market to Apple (NASDAQ: AAPL) and Alphabet‘s (NASDAQ: GOOG)(NASDAQ: GOOGL) Google.
However, Nadella changed things aggressively expanding the company’s cloud services, reinventing Windows as a cloud-based service, and ditching Windows Phone to launch new mobile apps for iOS and Android instead.
Microsoft’s cloud business has become its primary driver of growth, and the company’s revenue has grown from $ 86.8 billion in fiscal 2014 to $ 168.1 billion in fiscal 2014. fiscal year 2021, which ended in June, when its earnings per share more than tripled.
This growth spurt has catapulted Microsoft’s market cap from around $ 300 billion on Nadella’s first day to nearly $ 2.5 trillion today. Therefore, Nadella certainly deserves to sell some of her shares after this historic rally.
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Does the sale of Nadella indicate that Microsoft’s growth is peaking?
Satya Nadella’s total compensation increased 13% to $ 49.9 million in fiscal 2021. That total included a base salary of $ 2.5 million, $ 33 million in stocks and 14 , $ 2 million in non-stock incentives.
Thus, the last sale of Nadella represents several years of cumulative stock bonuses. The transactions also represent Nadella’s only non-automatic direct sales in the past two years.
Microsoft CFO Amy Hood also sold 60,000 shares (11% of her holdings at the time) for an average price of $ 303.08 in a direct trade on September 1. This represented Hood’s first direct sale since last September.
These insider sales don’t necessarily indicate that Microsoft is in trouble. Executives sell their stocks all the time for personal reasons unrelated to a company’s short and long term prospects. For example, Microsoft co-founder and first CEO Bill Gates sold most of his stock before stepping down from the board in early 2020, but the stock has continued to rise.
Microsoft’s stock has nearly tripled in the past three years and has grown by over 50% in the past 12 months alone. Analysts expect its revenue and profits to rise 17% and 14%, respectively, this year, but the stock is certainly not cheap at 36 times future earnings.
This higher multiple – along with macroeconomic headwinds like inflation, supply chain constraints, and a new COVID-19 variant – could have convinced Nadella, Hood and other Microsoft insiders to sell some of their stocks. . However, Nadella’s holdings will rise again this year as he gets more stock bonuses.
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Remember the difference between insiders and investors
Generally speaking, it is more useful for investors to track insider trading in struggling companies – where insiders can make nice promises about a turnaround while getting rid of their own stocks – than successful ones. .
Microsoft is one of the top performers, and Nadella’s big sale does not indicate that her long-term outlook has changed. As an outside investor, you also won’t be able to receive new shares like Nadella, who can afford to sell her shares multiple times as they are only a large part of her salary.
Therefore, it makes no sense to sell your shares just because the CEO has sold half of his current position. Instead, investors should pay attention to the growth of Microsoft’s cloud and the expansion of its ecosystem instead of worrying about Satya Nadella’s well-deserved salary.
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Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. Teresa Kersten, an employee of LinkedIn, a subsidiary of Microsoft, is a member of the board of directors of The Motley Fool. Lion sun owns shares of Apple. The Motley Fool owns shares and recommends Alphabet (A shares), Alphabet (C shares), Apple and Microsoft. The Motley Fool recommends the following options: March 2023 long calls at $ 120 on Apple and March 2023 short calls at $ 130 on Apple. The Motley Fool has a disclosure policy.
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