On June 13, Microsoft Corporation (NASDAQ:MSFT) announced plans to acquire professional social-networking site LinkedIn Corp (NYSE:LNKD) for a cool $26.2 billion and as expected, the deal raised a lot of eyebrows. Why is Microsoft paying triple the amount it paid to acquire Skype back in 2011, the company’s largest acquisition to date?
As revealed by Bloomberg’s Dina Bass, Microsoft’s CEO Satya Nadella is optimistic that LinkedIn will be a catalyst for Microsoft’s growth. Although analysts are unsure how the deal will affect shareholders, Microsoft does have a poor reputation of monetizing large acquisitions. The Redmond tech company’s busted acquisitions include Nokia’s handset business for $7.2 billion and aQuantive for $6.3 billion in 2007.
Nadella mostly wrote off Nokia after the completion of the deal. But game maker Mojang, which Nadella acquired 2 years ago for $2.5 billion, turned out to be quite a profitable venture for Microsoft. Mojang is best known for its highly-successful Minecraft game, which sold over 100 million copies to date. It is the second best-selling game in history.
“When I look at both Minecraft and LinkedIn, they’re great businesses that are growing,” Nadella told Bass. “And so, in fact, if anything, our core job is to take that franchise and give it more momentum. In the case of Minecraft, it’s the biggest PC game, and we are the PC company. Their growth was moving to console. We have a console. Therefore, we were a perfect owner. Same thing with LinkedIn. They’re a professional network for the world. We have the professional cloud. Time will tell, but I’m very, very bullish.”
LinkedIn continues to surprise the business press as its earnings and revenues remain on the rise. Although the professional social media site posted a disappointing loss of $119 million, its non-GAAP earnings of $1.13 per share have exceeded expectations of $0.78 per share. For the last quarter, LinkedIn’s recorded revenues increased by 31% to $933 million.
It is also worth noting that LinkedIn’s membership has grown considerably each month from 433 million to 450 million and the members’ page views rose to 32%. In fact, the company yielded 21% year-over-year growth in page views for each member accessing the service.
According to Redmond mag, although LinkedIn’s $26.2 billion price tag seems steep, Microsoft is only paying a measly $58.22 per member, which is almost $2 less than the $60.04 around the time the deal was announced.
But as a New York Times report pointed out, Microsoft should be wary of its bid, drawing a comparison to the fate of Monster Worldwide, a service similar to LinkedIn.
Monster Worldwide was founded in 1994, around the same time as search engine Yahoo! (NASDAQ:YHOO) The website became popular because it changed the way people searched for jobs. During its peak, the job-listing website was worth $8 billion.
But the popularity of LinkedIn slowly shrunk Monster’s fortunes until it was sold to a Dutch rival for only $429 million, debt included. Despite rumblings from the business press, Microsoft’s stock is on the green, closing at $58.20, up by 0.24% on August 9. In the past 52 weeks, shares of the $453 billion market cap software giant have traded between a low of $39.72 and a high of $58.50 with 50-day MA and 200-day MA located at $53.92 and $52.71 levels, respectively. Microsoft stock is up 25% on a year-over-year basis, and 5% since Jan.1.