The Wall Street Journal -- September 4, 1996
Inside Track:
Some Pixar Insiders Are Still Selling
Despite Cut-Rate Share Price
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By Bridget O'Brian
Staff Reporter of The Wall Street Journal
In the nine months since it went public at the height of the Christmas "Toy Story" hype,
Pixar Animation Studios' share price has dropped like a cartoon character jumping off a
cliff.
At many companies, a 66% drop from its peak stock price might be considered an
opportunity for insiders to buy shares. But over the last six weeks, several insiders of the
Point Richmond, Calif., computer-animation company behind "Toy Story," have been
exercising options and selling stock.
According to the database Federal Filings, three insiders filed papers with the Securities
and Exchange Commission last month indicating they plan to sell 345,000 shares. Two of
them have sold 17,500 shares, Federal Filings said.
For a company with 6.9 million shares outstanding, and where a dozen insiders hold
significant stakes, such selling hasn't exactly opened the floodgates. The selling is all
related to the exercise of options, and doesn't involve Pixar's biggest holder, founder
Stephen Jobs, who owns 80% of the company. Indeed, a company spokesman said he
considers the selling to be a small fraction of the stock held by insiders.
But in a market jittery about technology stocks and searching for clues, the selling hasn't
gone unnoticed among investors. "The fact that the stock is as low as it is and someone is
still selling is a mild negative," said Michael Murphy, editor of the California
Technology Stock Letter, a newsletter based in Half Moon Bay, Calif. "I wish somebody
thought this price was so low that they wouldn't sell a share of stock."
Yesterday, Pixar's stock gained $1 to close at $13.50 in Nasdaq Stock Market
trading.That's up from last week's low of $12.25. Pixar, which sold an 18% stake to the
public Nov. 29 at $22, saw its price quickly soar to a peak closing price of $39 amid a
wave of publicity about Mr. Jobs's comeback after the hit movie opened. This year it has
drifted generally lower, in line with other once-highflying technology stocks.
Until recently, no Pixar insiders could sell -- or buy -- as they were barred from doing
so for 180 days after the initial public offering under terms of the new issue. That
"lockup" ended in late May, when Pixar was selling in the $21 range.
At the time, there was little insider activity in the stock. The company's chief financial
officer, Lawrence Levy, exercised options May 28 to buy 25,000 shares -- at a price of 20
cents each -- and held on to them, a bullish move. In addition, officer William T. Reeves
also exercised 40,000 shares, and sold them May 29 at $21.13.
The more recent sellers include Pamela Kerwin, the company's vice president of
interactive media, who exercised options and sold 5,000 shares of stock at $13 on July 31.
She also filed papers last month saying she plans to sell 20,000 shares.
Edwin Catmull, a Pixar executive vice president and the company's chief technical officer
sold 12,500 shares on July 30 and July 31 at prices between $13 and $13.75, and also filed
papers showing he plans to sell another 100,000. Ralph Guggenheim, a producer, filed
papers in August indicating he plans to sell 225,000 shares.
Such a huge spread between the price at which insiders can exercise their options and the
share price, even at its recent low levels, provides something of a windfall to longtime
Pixar employees. Some analysts say that was a main reason for Pixar going public, and
that such selling isn't necessarily an indicator of future prospects.
"I'd find it much more significant if somebody left the firm. In this business, your people
are everything, and one reason I think they went public is to provide liquidity to key
people," said Genni Combes, a media analyst with Hambrecht & Quist. While it's never
good to see insider selling, she said, "to the extent they're taking some profits it's
normal." She rates Pixar a long-term buy.
Similarly, Harold Vogel of Cowen & Co. has the company rated at a "2," or a buy, which
he considers "positive but not jumping up and down." A follower of the stock since it
went public last year, he always considered it a volatile stock. He isn't concerned about
the insider selling. "I don't have the sense . . . there's any kind of bad situation," he said.
In an interview, Mr. Levy, Pixar's chief financial officer, points out that the sales have
been only a small percentage of what the officers own. "From my perspective, there's
actually been very little selling." Nor is there likely to be in the immediate future, as a
one-month trading window which opens after quarterly results are announced has closed
and won't reopen until after third-quarter results are released.
Currently, analysts are estimating that Pixar will earn eight cents a share in the third
quarter, a level recently revised downward from nine cents. For the second quarter,
Pixar's net income was $4.8 million, or 10 cents a share, nearly double analysts' estimates.
In the year-ago period, the company posted earnings of $5.1 million, or 13 cents a share
-- although that included a one-time patent license fee of $6.5 million.
The move downward may reflect Pixar's own shift away from making commercials and
into movie-making exclusively. While Pixar's technology is better than its rivals, "Wall
Street doesn't pay a lot for movies," says Mr. Murphy, the technology newsletter author.
"I think the stock is fairly valued here." He's hoping that if Pixar's stock price gets much
lower "We'd probably see some insider buying." |
