Tomahawk, WI 04/09/2014 (Basicsmedia) – The selloff of Facebook Inc (NASDAQ:FB)’s shares by its Chief Operating Officer Sheryl Sandberg is not the only instance of insiders cashing out while a company’s stock price is fabulously high.

Unrealistic Valuations Leading to Insiders Selling?

At least three other senior executives of Facebook have sold off some of their Facebook shares since the beginning of the year. Google Inc (NASDAQ:GOOG)’s Eric Schmidt sold off more than $111 million worth of shares during January and February. Co-founder Larry Page sold nearly $100 million worth of shares and the other co-founder Sergey Brin sold $95.4 million worth.

Similarly, LinkedIn Corp (NYSE:LNKD)’s CEO Jeff Weiner and co-founder Reid Hoffman also sold millions of dollars worth of LinkedIn shares.

Look at the valuations of these tech stocks. While Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) shares have P/E ratios of 13 and 14.8 respectively, LinkedIn has a massive P/E ratio of 794. While Google has a P/E ratio of 31, Facebook’s P/E ratio is above 90.

Amazon.com, Inc. (NASDAQ:AMZN) enjoys a P/E ratio of 557 and Netflix, Inc. (NASDAQ:NFLX) has a P/E ratio of 187.

These are exorbitant ratios and appear to be unsustainable in the long run. Only Microsoft and Apple have realistic P/E ratios and no insider selling in these mature companies both of which have crossed 40 years of existence.

Facebook’s Many Troubles

The challenge for Facebook to keep growing its revenue persists even as the social media behemoth has crossed a billion users worldwide. It continues to refine its advertising strategy to monetize the billion Facebook Inc (NASDAQ:FB) users. As online marketers ponder the choice between Facebook ads and Google Display Network ads, clearly Google has more avenues to place ads while Facebook only has its Timeline.

Similarly, while Google has moved on from being ‘just a search engine’ to doing many more things including driverless cars, Google Fiber, YouTube, Android, robots, etc., Facebook is trying to gain an entry into people’s lives in more ways by buying WhatsApp and Oculus VR. But Facebook’s ‘motives’ are always suspect as it has a less than stellar reputation in terms of respecting users’ privacy. The recent firestorm of protest that broke out in the wake of the Oculus acquisition shows what a steep mountain Facebook Inc (NASDAQ:FB) has to climb in order to convince the general public (and privacy advocates) that it has no ulterior motives.

As sweet little start-ups grow into massive multinational corporations (think Google), their youthful slogans (‘Don’t Be Evil’) appear childish anyway.

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