Microsoft just spent a whopping $26.2 billion in cash on LinkedIn. But, um, why? And does anyone else think this is a good idea?
Obviously, Microsoft CEO Satya Nadella thinks so.
“As I’ve thought about it more in terms of what is it that is most needed in today’s world, for sure I’m a deep believer in productivity tools and communication tools, because that’s what empowers people to be able to be great at their job,” he said.
“But think about taking that and connecting it with a professional network … you’re acquiring new skills, and being more successful in your current job and finding a greater, bigger next job.”
Nadella sees the combination of Microsoft’s suite of office products and LinkedIn’s networked user base of 400-million-plus users as the completion of an ecosystem that starts by integrating the networking platform’s functionality into Office 365 (Outlook, Calendar, Skype and Office) and its Dynamics CRM suite.
Furthermore, six of the Top 25 courses offered by LinkedIn’s online learning platform Lynda.com are related to Microsoft products, further reinforcing CEO Jeff Weiner’s assertion that the two companies now have both “purpose” and “structure” alignment.
But will it work? Analysts actually seem pretty bullish on the move.
“Given that 65 percent of LNKD’s revenue is derived from Talent Solutions (predominantly seat-license-based enterprise software sales), we believe that LNKD could also be a strategic fit for another enterprise software company,” Wells Fargo financial analyst Peter Stabler said. “However, we do not expect another bidder to emerge given the potential scale of the transaction.”
Because, for starters, who has $26.2 billion?
“We believe an expanding portfolio of products and international growth opportunities provides a ramp to multiple years of double-digit revenue growth and margin and earnings expansion,” Stabler wrote.
Analysts from both Jeffries and BMO Capital Markets concur with Stabler’s contention that no other bidders will step in — due at least partially to the deal’s sizable termination fee.
At Jeffries, analysts see the acquisition further enhancing “Microsoft’s transition from a desktop software firm to a cloud computing services provider.”
They also tout LinkedIn’s “unique position and reach” for making it so valuable. With more than one billion customers itself, Microsoft is used to such scale. Also, this Internet M&A thing is simply here to stay, so get used to the trend, they warn.
At BMO, analysts emphasized the positives for those with LNKD stock: “The 50 percent premium represents a good outcome for shareholders,” they wrote.
You’re darn right it does. After all, LNKD stock plummeted heavily in early February. Shares had already been on the decline since Nov. 10, 2015 (when they were up to $255.54). On Feb. 4, LNKD slid to $192.28 per share. A day later it fell all the way to $108.38 due to lowered quarterly earnings expectations.
Still, “The LinkedIn team has grown a fantastic business centered on connecting the world’s professionals,” Nadella concluded. “Together we can accelerate the growth of LinkedIn … as we seek to empower every person and organization on the planet.”
Ultimately, of course, it’s all about the shareholders. And at least the LinkedIn ones are happy today, as stock just jumped 47 percent from Friday’s close, thanks to the acquisition news.
As for Microsoft shareholders … well, at least you didn’t lose that much on your own stock price today.