Is Zuckerberg In Fantasy Land? Insights From Meta Insider Trading



Mark Zuckerberg's Meta Platforms made the stunning announcement this week that it would be laying off over 11,000 employees in what amounts to the first broad reductions in the company's 18-year history. These layoffs come amidst a big tech bashing, as Apple, Amazon, Microsoft, and Google combined with Meta have evaporated trillions from their market capitalizations this year. Mr. Zuckerberg was heartfelt in his announcement to his employees of the reduction, taking responsibility for mistakenly believing that the post-Covid growth would persist. However, does Mr. Zuckerberg's insider trading history suggest that he is more sophisticated than his comments would indicate? We will investigate.

Meta has certainly had a difficult fall. The company's stock price is down nearly 70% in the last year and almost 25% in the last month alone. Meta's altruistic effort to bring the VR dystopia right into our living rooms has shown to be hugely unpopular, with their Reality Labs division realizing a 49% reduction in revenue from a year ago with a $3.7 billion operating loss to boot. Its flagship metaverse product, "Horizon Worlds" has come way short of the projected 500,000 monthly users, with less than 200,000 users registered as of last month. 

Overinvestment in underperforming products has coincided with overinvestment in personnel, and that has come at the price of 11,000 layoffs, announced by CEO and Founder Mr. Zuckerberg in a Wednesday letter to the company. Mr. Zuckerberg cites "the macroeconomic downturn, increased competition, and ads signal loss" as factors that caused him to underestimate revenue growth, resulting in the need to let go of enough employees to fill a small arena in a single round. He indicated in the letter that at least some of these layoffs will occur in the highly unprofitable, aforementioned Reality Labs division.

But should we find Mr. Zuckerberg to be credible in this admission that these layoffs, which he views as a "last resort," were totally unavoidable? Especially the inclusion of the "macroeconomic downturn" as one of the factors would imply a kind of naivety that would be surprising from an entrepreneur of Mr. Zuckerberg's pedigree, who has navigated Meta, previously Facebook, through all the various ups and downs of the market since its founding in 2004. It would suggest, for example, that Mr. Zuckerberg is unaware of business cycles, and how artificially lower interest rates disrupt the valuation calculation, leading companies to favor projects whose cash flows are expected to arrive in the far-off future. As interest rates subsequently rise, the calculation reverses, rendering these projects unprofitable and necessitating abandonment. From his public comments on the product, Mr. Zuckerberg was aware that the metaverse product would fall into the category of such a project, claiming that he expected it to lose money for the foreseeable future.

Lastly, such comments would also suggest that Mr. Zuckerberg would be unaware of Meta's standing in the greater economy, not knowing whether Meta's stock price was overpriced or underpriced at any one time. But on a cursory glance, this does not appear to be the case. In October 2021, when Mr. Zuckerberg remarked that the metaverse project would cost $10 billion that year with increases in the years to come, he was already in the process of rapidly selling Meta shares. In fact, Mr. Zuckerberg sold over 1.3 million shares in that month alone, each for the price of around $330, close to the all-time high price of around $380 reached the prior month. That is quite a lot of selling for someone who claims to have been unable to anticipate the macroeconomic downturn that would get started just two months after those comments.

While Mr. Zuckerberg would prove to be prescient in this instance, selling millions of shares as Meta's stock price reached an apex, we should examine more of his insider transactions to see if this pattern was repeated or if it was just a lucky, one-off event. 

Mark Zuckerberg Insider Trading

Let's now take a look at Mr. Zuckerberg's insider trades since the start of 2012, alongside Meta's stock price.

The above graph shows Meta's stock price as the line on the secondary axis, alongside shares traded by Mr. Zuckerberg only, indicated with bars coming down from the top. The window shown nicely captures Meta shares' journey over the past 5 years, starting at around $118 in January 2017 and ending at the current day with the stock price close to $90.

(This chart was generated using insidersentiment.com. Subscribers to insidersentiment.com can easily generate charts like these for any public company. You can quickly look up the insider trading activity of the stocks you're currently holding on to, for example, and see if their actions align with their words.)

Looking more closely at the chart, we see a striking pattern: Mr. Zuckerberg has an uncanny knack for selling right before subsequent falls in the stock price. Below, I've recreated the chart, but have added (very professional, graphics studio quality) markings showing how Mr. Zuckerberg's sales consistently precede dips. 

With the markings, you can clearly see Mr. Zuckerberg's sophisticated trading pattern. First, there are no purchases, only sales. These sales are grouped together, and tend to precede downturns in Meta's stock price. The most recent of these groups of sales occurred right as Meta's stock price reached its absolute peak throughout the 12 month span between November 2020 and November 2021. During this period, Mr. Zuckerberg sold approximately 16 million shares. Eyeballing an average sale price north of $300, that means these shares were likely worth over $5 billion in total. Mr. Zuckerberg has not sold any stocks since then as Meta's share price has tanked. Notably, we see similar behavior occurring at prior relative peaks in Meta's stock price throughout the last 5 years, as the image shows.

In a previous blog post, we've shared how insiders use their expertise and specialized knowledge as firm and industry leaders, combined with their knowledge of macroeconomic, technological and consumer trends to make profitable trades on average. Regardless of his words, this is clearly the case with Mr. Zuckerberg as well. (This is also what makes aggregated insider trading so valuable as a forward-looking macroeconomic indicator.)

At the very least, Mr. Zuckerberg will be providing the US-based, furloughed Meta employees with generous severance, and we hope this helps them find new positions of employment quickly. However, they should take their former employer's apology with a serious grain of salt - his timing in selling Meta shares shows he knows more than a thing or two about the macroeconomic environment, and just where Meta fits into it. 

If you found the above content informative, you may be interested in the new service we just launched in collaboration with University of Michigan Ross School of Business Professor Nejat Seyhun. Intended for money managers, day traders, and investors of any size, insidersentiment.com tracks aggregated insider trading indicators for a variety of investment styles and can help you stay ahead of the market. You can also follow this free blog, where we post about insider trading in general as well as recent economic trends.