‘It felt like he was picking a spot here to try to capture a high price,’ expert on insider activity says, while ServiceNow cites McDermott’s property purchase and says it ‘could not be clearer how bullish’ the CEO is on the software company
Shares of ServiceNow Inc. declined in Monday trading after the company’s chief executive disclosed the sale of a sizable chunk of stock.
CEO Bill McDermott cashed out of almost 54,000 shares, worth nearly $25 million at the time of his Feb. 1 transactions, according to a filing with the Securities and Exchange Commission that came out after Friday’s closing bell. He had 1,933 shares of unrestricted, non-option holdings remaining after the transactions, per the filing.
ServiceNow’s stock NOW, -3.60% fell 3.6% in Monday trading.
Macquarie analyst Sarah Hindlian-Bowler said in a note to clients that she saw “no read-through to the business.” She relayed information from a weekend discussion with ServiceNow in which she said the company indicated that McDermott sold stock to make a personal investment in property that had recently become available.
A ServiceNow spokesperson confirmed to MarketWatch that McDermott sold stock to make a property purchase.
“It could not be clearer how bullish he is on ServiceNow and its future,” the spokesperson said. “ServiceNow stock is the majority of Bill’s compensation, and this is his first stock sale in more than two years. Bill retains a large equity stake in the company; in fact, as his equity awards continue to vest over the next 12 months, he will more than replenish the amount he just sold.”
But for Ben Silverman, the director of research at VerityData, McDermott’s sales seem “opportunistic” given that he declined to sell stock over the prior two years.
“It felt like he was picking a spot here to try to capture a high price with the sale,” he told MarketWatch, as ServiceNow’s stock is “in recovery mode” from its fourth-quarter lows. Shares have gained 17.1% so far this year, after diving 40.2% in 2022.
Silverman, who tracks buyback patterns and insider activity, doesn’t think a real-estate investment is a “good excuse” for a stock sale that made up such a large portion of McDermott’s unrestricted, non-option holdings.
“In fact, that makes it worse,” he told MarketWatch. Real estate is an investment, but so is ownership of ServiceNow shares. “What you’re saying is that he thinks a real-estate investment is a better investment than ServiceNow stock.”
McDermott, who led SAP SE SAP, -0.39% before coming to ServiceNow, received a 2021 pay package worth almost $166 million, noted Silverman, and about $162 million of that was in options or restricted stock.
But the 555,000 long-term options that McDermott has are currently worthless, he noted, since they’re struck at $679.76 over the next few years, whereas ServiceNow’s stock recently changed hands near $460.
“This is no fault of his,” Silverman said, but the options are priced high relative to the stock’s current price. They’re stuck just shy of the stock’s all-time closing high of $701.73 that was seen in November 2021.
Looking at options “doesn’t accurately represent his current equity exposure” in Silverman’s view, since ServiceNow’s share price would need to “move significantly above” $679.76 for the options “to have any real value for him.” Meanwhile, unvested restricted shares are “not his yet.”
Chief Commercial Officer Paul Smith sold all of his unrestricted non-option holdings for about $1 million in January, Silverman noted, and Chief People Officer Jacqueline Canney sold about 80% of hers, worth roughly $500,000, at around the same time.
“This is a company where the prevailing attitude toward stock-based compensation is to generate liquidity and not increase equity exposure for the long term,” Silverman said.