Is Microsoft Paying Too Much for LinkedIn? – Motley Fool
Microsoft‘s (NASDAQ:MSFT) pending acquisition of LinkedIn (NYSE:LNKD) is generally regarded as a better deal than many of the other deals Microsoft has made recently, but it still comes with its own risks. In this clip from the Industry Focus: Tech podcast, Daniel Sparks and Dylan Lewis go over a few.
A transcript follows the video.
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This podcast was recorded on June 17, 2016.
Daniel Sparks: That brings us into another one of the risks for this company, for this acquisition — the premium, the high price that they’re paying. While, like I said earlier, the stock is down from its 52-week high, the 50% premium Microsoft is paying highlights the huge difference between what the market thinks LinkedIn is worth today and what Microsoft thinks it’s worth. $3.2 billion in revenue for LinkedIn, and you’re paying $26.2 billion, that already highlights that LinkedIn is a really forward-looking valuation, which does make sense. The revenue is growing. But it highlights the fact that if you pay a higher price, there’s a greater risk to the value actually coming through. That’s one of the key risks in this acquisition.
Then, like we said, the proposed synergies that they’re talking about are little bit questionable. I see the value as the business itself, but I don’t know. Some of these are a little funky.
Dylan Lewis: Yeah. I will say, the purchase price, trailing 12-month revenue of $3 billion, you look at the purchase price of $26 billion, that puts them at about 8 times sales, which isn’t outrageous, as far as acquisitions go. But it is expensive. That $196 is around where they were trading prior to offering up that lackluster guidance and that revised outlook on what 2016 will be. There are a lot of shareholders who have seen the price around here or even higher during the time they’ve owned it.
Sparks: Yeah, that highlights that it is trading lower. It depends on how you look at it. Zoom out a little bit, which is usually the best practice, and Microsoft is being somewhat prudent. At least they didn’t purchase it when it was trading around $260.