LinkedIn is certainly the right social media platform for Microsoft but there are a few things that make this purchase very expensive and some red flags are waving like....
- LinkedIn makes no money but spends billions each year.
- LinkedIn only has a niche market, business people and the use base will not increase that much each year as most business people already have their LinkedIn account.
- Facebook, which was a lot more expensive when sold offered a much better value because it is growing rapidly and as it is not limited to business people then the market and possibilities for growth are much more.
- The buyout price of $196 per share values the company at 91 times EBITDA over the trailing 12 months.
- NS are paying $250 per average monthly visitor, and $60 for each of LinkedIn's 433 million registered users, keep in mind many user acconts are not active or are fake
- Microsoft has a poor track record when it comes to big acquisitions.
- Paying a sizable premium wouldn't be a problem if LinkedIn was profitable. LinkedIn uses a lot of stock-based compensation to pay its employees.
- LinkedIn's revenue growth in 2016 is expected to slow by more than 10 percentage points to 24.5%, and to just 19.6% next year.
- Some questions remain about where MS will take LinkedIn as they seem to be still in the "ideas" stage.
I do hope Microsoft can make this purchase work for them, we will see....