Microsoft (MSFT +0.34%) recently became a hot topic after CEO Satya Nadella sold more than half of his shares for about $285 million on Nov. 22 and 23. According to the F-4 filing, Nadella sold 838,584 shares between $334.37 and $349.22, which reduced his total holdings to 830,791 shares.
Should investors be concerned about that massive sale? Let's look back at Nadella's accomplishments, his compensation, and prior stock sales to decide.
Image source: Microsoft.
How Nadella turned Microsoft into a growth stock again
When Nadella took over as Microsoft's third CEO in 2014, the tech giant was in serious trouble. New cloud-based services were disrupting its desktop-based software, its Windows users were stubbornly sticking with older versions of the OS, and it had lost the mobile market to Apple (AAPL 0.39%) and Alphabet's (GOOG 0.04%) (GOOGL 0.11%) Google.
However, Nadella turned things around by aggressively expanding the company's cloud services, reinventing Windows as a cloud-based service, and abandoning Windows Phone to launch new mobile apps for iOS and Android instead.
Microsoft's cloud business became its core growth engine, and the company's revenue surged from $86.8 billion in fiscal 2014 to $168.1 billion in fiscal 2021, which ended this June, as its earnings per share more than tripled.
That growth spurt catapulted Microsoft's market cap from about $300 billion on Nadella's first day to nearly $2.5 trillion today. Therefore, Nadella certainly deserves to sell some of his shares after that historic rally.
Does Nadella's sale indicate Microsoft's growth is peaking?
Satya Nadella's total compensation rose 13% to $49.9 million in fiscal 2021. That total included a $2.5 million base salary, $33 million in stock awards, and $14.2 million in non-equity incentives.
Therefore, Nadella's latest sale represents several years of cumulative stock bonuses. The transactions also represent Nadella's only non-automatic direct sales over the past two years.
Microsoft's 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 transaction on Sept. 1. That represented Hood's first direct sale since last September.
Those insider sales don't necessarily indicate Microsoft is in trouble. Executives sell their shares all the time for personal reasons that aren't related to a company's near-term and long-term prospects. For example, Microsoft's co-founder and first CEO Bill Gates sold most of his shares before leaving the board in early 2020 -- but the stock continued to rise.
Microsoft's stock has nearly tripled over the past three years, and it rallied more than 50% in the past 12 months alone. Analysts expect its revenue and earnings to grow 17% and 14%, respectively, this year, but the stock certainly isn't cheap at 36 times forward earnings.
That higher multiple -- along with macroeconomic headwinds like inflation, supply chain constraints, and a new COVID-19 variant -- might have convinced Nadella, Hood, and Microsoft's other insiders to sell some of their shares. However, Nadella's holdings will rise again this year as he nets more stock bonuses.
Remember the difference between insiders and investors
Generally speaking, it's more useful for investors to follow insider trades in struggling companies -- where insiders might be making rosy promises about a turnaround while dumping their own shares -- than successful ones.
Microsoft is one of the successful ones, and Nadella's big sale doesn't indicate that its long-term prospects have shifted. As an outside investor, you also won't be eligible to receive any new shares like Nadella, who can afford to repeatedly sell his shares because they're just a big part of his salary.
Therefore, it doesn't make any sense to sell your stock just because the CEO sold half of his current position. Instead, investors should pay attention to Microsoft's cloud growth and the expansion of its ecosystem instead of fretting over Satya Nadella's well-deserved payday.
