26.2 billion! That seems like a big ticket price, but Microsoft is getting a good deal. Here are the top reasons why the acquisition makes sense for Microsoft.
First, LinkedIn is undervalued. Even paying a 48% mark-up on the current stock price, Microsoft is still buying LinkedIn at less than its value on January 1st, 2016. The markets have been hammering LinkedIn for not maintaining growth numbers in users and revenues. These criticisms are justified. LinkedIn has only recently woken up to leverage its massive network and move beyond being just a job search site. Microsoft will hopefully be able to better leverage LinkedIn’s impressive 400 million members.
Second, Microsoft was sitting on more than $100 Billion in cash and short-term investments. That’s a big weight on its balance sheet and the pressure to spend it or issue a special dividend, as it has done in the past, was mounting. Better to spend it than to lose it!
Third, it strengthens Microsoft’s position in the enterprise market segment. It makes little sense for Microsoft to invest in a consumer social media site like Snapchat when its core focus is on the enterprise space. Microsoft has been talking about building its social presence for some time. Its purchase of Yammer has not quite gone far enough. This acquisition will give it some social media street credit.
Fourth, LinkedIn is well aligned with Microsoft’s Dynamics Cloud business. Imagine the potent combination of Microsoft Dynamics and LinkedIn Sales Navigator? This acquisition is a direct challenge to the CRM market leader, Salesforce.
Fifth, LinkedIn is strong on mobile, where Microsoft continues to be weak, despite multiple attempts to grow. 60% of LinkedIn’s traffic originates from a mobile device. Microsoft could build on this core strength and adapt it to its other enterprise assets, such as Office 365.