LNKD Stock Skyrockets 48%
If you are one of the investors that got into LinkedIn Corp (NYSE:LNKD) stock after its massive downfall in February, today is a good day for you. As Microsoft Corporation (NASDAQ:MSFT) announced that it is acquiring the professional social network company, LinkedIn stock soared more than 48%.
On Monday, June 13, Microsoft announced that it would acquire LinkedIn for $26.2 billion in cash. It would pay $196.00 for each LinkedIn share, representing a 50% premium over the company’s closing price on Friday. (Source: “Microsoft to Acquire LinkedIn,” Microsoft Corporation, June 13, 2016.)
“The LinkedIn team has grown a fantastic business centered on connecting the world’s professionals,” said Satya Nadella, chief executive officer of Microsoft. “Together we can accelerate the growth of LinkedIn, as well as Microsoft Office 365 and Dynamics as we seek to empower every person and organization on the planet.” (Source: Ibid.)
The boards of directors of both LinkedIn and Microsoft have unanimously approved the transaction. The deal is expected to close in the current calendar year. After completion of the transaction, LinkedIn’s financial results would be reported as part of Microsoft’s productivity and business processes segment. Microsoft expects the deal to bring $150 million of cost synergies annually by 2018 and to be accretive to adjusted earnings per share in its fiscal 2019. (Source: “Microsoft to Acquire LinkedIn,” Microsoft Corporation, June 13, 2016.)
By around 10:30 a.m., LinkedIn stock climbed 47.2% to $193.00 apiece while Microsoft shares slipped 2.7% to $51.10.
Note that this is not Microsoft’s first try at acquiring the professional social network. Before LinkedIn’s initial public offering (IPO) in 2011, Microsoft made several offers to buy the company. Business Insider said that one time, the deal “was close to happening for around $500.0 million.” Then Microsoft increased its offer to close to $2.0 billion. (Source: “Scuttlebutt: Microsoft Was Close to Buying LinkedIn for $2 Billion Prior to LinkedIn’s IPO,” Business Insider, October 23, 2014.)
Obviously, those attempts did not really work out. But now, the tech giant is finally successful at buying LinkedIn, albeit for a much higher price.
To me, though, today’s announcement doesn’t really come as a big surprise. Since LinkedIn stock’s downturn started in February, I have said many times why the company’s value is too hard to ignore and why LNKD stock could start rising again.
The thing is, LinkedIn stock was down after its somewhat disappointing guidance in February, but since then the company’s performance has been more than impressive. In the first quarter of 2016, LinkedIn’s cumulative members grew 19% year-over-year to 433 million. Moreover, its monthly active unique visitors also increased by nine percent year-over-year to 106 million. (Source: “LinkedIn Announces First Quarter 2016 Results,” LinkedIn Corp, April 28, 2016.)
Financials improved as well. LinkedIn’s total revenue surged 35% year-over-year to $861 million, beating Wall Street’s expectation of $828 million. The company also generated $0.74 in adjusted earnings per share, smashing analysts’ estimates of $0.60.
In the last decade or so, LinkedIn has become the place for professionals to connect online. It’s an indispensable tool for human resources professionals as well as job seekers. Through its monetizing efforts, more users—especially HR professionals—have become paying members. In a recent survey of LinkedIn users, 45% of respondents said they would increase their spending over the next 12 months. (Source: “RBC Endorses LinkedIn, Sees 20% Upside,” Benzinga, June 9, 2016.)
Now, with Microsoft getting onboard, LinkedIn’s business could start growing at an even faster pace.
In a presentation on Monday, Microsoft pointed out just how much potential this deal would create for the two companies. It said that LinkedIn’s total addressable market (TAM) is around $115 billion. Microsoft, on the other hand, has $200 billion TAM in its productivity and business process segment alone.
What we might see in the future is that “a professional’s profile will be unified and the right data at the right time will surface in an app, whether Outlook, Skype, Office, or elsewhere.” (Source: Ibid.)
The Bottom Line on LNKD Stock
LinkedIn stock was already showing signs of improvement before the announcement. After joining Microsoft, the online professional network will likely enter a new era of growth. And that’s a good thing to know for LNKD stock investors.