A Tale of 2 Insider Trades

Earlier this week I singled out Snowflake (NYSE: SNOW) as one beaten-down growth stock I think is worth buying now. I argued the market was overreacting to a combination of Snowflake’s conservative forward guidance and the decision of longtime CEO Frank Slootman to retire. Slootman is being replaced by former Google exect and Snowflake Senior VP of AI, Sridhar Ramaswamy.

Apparently Mr. Ramaswamy agrees that the stock is a bargain. According to an SEC filing dated yesterday after the markets closed, on Monday Ramaswamy purchased 31,542 shares of Snowflake at an average price of $158.52 per share — meaning he spent just over $5 million of his own money in a vote of confidence in the business he’s now leading. The buy brought Ramaswamy’s total stake to 224,181 shares, worth a little over $36 million as of this writing.

Naturally, the market let out a collective “meh” in response to the news, with shares of Snowflake rising around 1% on the day.

That’s fair enough; if anything, in my opinion it gives opportunistic investors an extended chance to open or add to their positions before the underlying strength of Snowflake becomes more clear.

Meanwhile, shares of recently public self-proclaimed “front page of the internet” Reddit (NYSE: RDDT) plunged 14.6% on Thursday after the company disclosed that on Monday, CEO Steve Huffman sold 500,000 shares of the company for $16.15 million — an average per-share price of $32.30.

Huffman wasn’t the only Reddit insider to cash out this week; Chief Technology Officer Brian Slowe sold 185,000 shares, CFO Andrew Vollero parted ways with nearly 71,765 shares, and Chief Operating Officer Jennier Wong sold 514,000 shares — with all three selling at the same $32.30 price as Huffman’s transaction.

To be fair, these sales from Reddit’s C-Suite aren’t apples-to-apples comparisons with the purchase from Snowflake’s incoming leader. For one, note all four sales were at the exact same price — and a price that was far below Reddit’s market closing price of $59.73 per share on Monday. Coupled with the fact that Reddit literally just went public on March 20, 2024 at $34 per share, it’s clear these were all pre-scheduled transactions.

Here again, insiders might sell shares for any number of reasons, but the purpose of these share sales in particular isn’t immediately clear. They could have sold for tax purposes, to make a large personal purchase, or simply to diversify their respective portfolios after finally being given the chance to do so now that Reddit is a publicly traded business.

Of note: Each executive still owns a significant number of Reddit’s Class A common stock even after this week’s sales; Slowe currently holds 413,684 shares, Vollero owns 681,660 shares, Wong owns 1,736,813 shares, and Huffman owns 710,306 shares — each massive fortunes in their own rights with Reddit stock currently trading hands at just above $49 per share.

More pertinent to investors should be the question: Is Reddit truly deserving of its $8 billion valuation today?

Perhaps — but that’s a question I intend to find the answer to in the coming months as I have more time to delve into Reddit’s user base, revenue and earnings growth, cash flows, and total addressable market.

In the meantime, as the buzz surrounding Reddit’s IPO begins to fade, I strongly suggest investors take any additional insider buys and sells with a grain of salt.

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