Is this the kind of magic that $26.2 billion buys? It sounds like a good reason for me to dump my LinkedIn account.ģ. Nadella touted the idea that business people working on projects will love the way the combined company will be able to spam them with more targeted newsfeeds!
#LINKEDIN STOCK PURCHASE SOFTWARE#
While I have no doubt that Microsoft will try to use the 433 million people who have their profiles on LinkedIn to sell them software and services, there is no reason to believe that Microsoft has the strategic skills needed to revive LinkedIn's growth. There is no scenario I can envision in which the combined companies will be better off. Combined companies will not be better off. RBC analyst Mark Mahaney told the New York Times that over the last two years, LinkedIn's stock-based compensation was 96% of its operating income - many times more than the 16% spent by Google, Amazon and Facebook.Īs a LinkedIn user, I cannot see anything worth paying for and I would guess that there are simply not enough people who see enough value in the service to make it worth "upgrading to premium."Ģ. This reveals another fundamental flaw with the industry - its profits are so slim that LinkedIn must use more stock than its peers to attract and retain talent. Instead, it wants analysts to value it based on Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) which strips out stock-based compensation. To be sure, LinkedIn considers it unsophisticated for people to look at its Generally Accepted Accounting Principles (GAAP) net income.
But the company lost $166 million on $2.9 billion in sales in 2015. If the industry of business social networking were attractive, LinkedIn - which is a leader - would likely enjoy the economies of scale needed to make it profitable.
Here's why I believe the deal fails the four tests. An eBook From Forbesįrom PCs to vaccines, find out how Bill Gates made his mark on the world. Now that Microsoft is buying LinkedIn, whether or not Weiner can answer these questions will not matter as much as it once did.īut the deal still begs the question - Does the Microsoft/LinkedIn deal pass the four tests of a successful acquisition?īill Gates: Beyond Microsoft, Money, Malaria. By adding entirely new classes of products, or creating a new growth culture?.By inventing new products for its existing customers?.By selling its current products to new customers, or in new geographies?.Could it be spurred by improving LinkedIn’s offerings?.This slashed a cool $1 billion from the net worth of LinkedIn’s founder, Reid Hoffman, and forced Weiner to ponder important questions that needed to be answered before investors could hope to recoup what they lost. LinkedIn lowered its expectations for the year’s growth in revenue (from 35% to 20%) and adjusted earnings (from 41% to 7%) - well below what analysts expected. The reason was easy to understand, yet difficult to remedy. That was the day investors hacked 44% from LinkedIn's market capitalization. I believe this is a flimsy justification for spending $26.2 billion.īut to understand why it happened, a good place to start is to look what happened to LinkedIn's shares after the stock market opened on February 6, 2016.
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