There were plenty of disgruntled sellers of Google's (NASDAQ:GOOG) stock on Friday. Shares of the world's leading search engine took a 6% hit, despite better-than-expected quarterly results.
Now it seems that Google's founders, Sergey Brin and Larry Page, will get their turn to join the exodus.
An SEC filing over the weekend revealed that Google's co-founders are initiating an automated trading plan. Brin and Page want to sell roughly 5 million shares apiece, in an effort to diversify away from their massive stakes in Big G.
The timing of the filing is unfortunate, but there's more to the partial exit strategy than meets the eye.
The $5.5 billion plan
On the surface, these sales may appear problematic. No one knows Google better than the two guys who started the company. Why the insider selling, especially now? Given the stock's triple-digit share price, unloading a collective 10 million shares amounts to a whopping $5.5 billion windfall. Has Google jumped the shark?
Before we tackle that meaty question, let's clarify a few of the factors behind the move. For starters, Brin and Page aren't bailing on Google. They own roughly 57.7 million shares between them. In other words, even after their sales, they will still retain 47.7 million shares worth $26.2 billion (based on last week's close).
There are several other things to consider.
- The Rule 10b5-1 plan is automated, so Brin and Page won't be timing the sale of stock.
- Divestiture will take place over five years, so it's not as if the market is being hit with an order to unload 10 million shares this week.
- The SEC filing may have been made after Friday's close, but the plan was actually adopted nearly two months ago -- on Nov. 30, 2009.
That last point is important. This wasn't a move based on any events that may have transpired in December or January. Brin and Page had committed to the plan before Google's threat to leave China opened the door for Baidu (NASDAQ:BIDU) to gobble up even more market share in the world's most populous nation, or before weak initial Nexus One sales squelched any notion that Google might compete on the level of Apple (NASDAQ:AAPL) or Research In Motion (NASDAQ:RIMM) in the lucrative smartphone space.
On the other side of the fence, plenty of positive things have taken place at Big G since the plan was adopted. Google continued to gain domestic market share against both Yahoo! (NASDAQ:YHOO), Microsoft's (NASDAQ:MSFT) Bing, and AOL (NYSE:AOL) in December. It also went on to wrap up the fourth quarter with a market-thumping 33% surge on the bottom line.
Insider selling is never a positive development, but there are varying degrees to the negative implications. In Google's case, the bearish ammo is pretty weak.
A few reasons to buy the shares that Brin and Page are selling
Buying Google at this point may seem foolhardy. The stock has soared 90% since bottoming out in March, even though its earnings haven't grown that quickly.
Google's turbulence in China may have led to some jingoistic high-fives initially, but now the company's softening its language. The dot-com giant may be trying to achieve a delicate balance between maintaining its global presence and not upsetting the human-rights activists to whom it appealed earlier this month.
But amid all these ups and downs, the stock is trading at a reasonable 21 times forward earnings. If Google was able to grow revenue and earnings 17% and 33%, respectively, during its previous quarter, even in an economic lull, one can only imagine how it will fare once advertisers begin spending again.
So don't get bent out of shape just because Google's co-founders want to sell 17% of their shares over the next five years. If you owned nearly $32 billion worth of a single company -- as Brin and Page collectively do -- you, too, would be thanking your stars as you diversified.
What do you think of Google's stock sale? Share your thoughts in the comment box below.
