Microsoft Corp. (ticker: MSFT) is making moves to add a new dimension to its enterprise business by announcing that it acquired LinkedIn Corp. (LNKD) for a cool $26.2 billion in cash.
Microsoft CEO Satya Nadella says the company plans to integrate LinkedIn with its Office 365 suite. According to an internal memo he circulated, “this combination will make it possible for new experiences such as a LinkedIn newsfeed that serves up articles based on the project you are working on and Office suggesting an expert to connect with via LinkedIn to help with a task you’re trying to complete.”
Essentially, Office would pull information from LinkedIn to help you in ancillary ways while you’re using Office products.
While the possibilities are enticing, it makes sense to ask “why?” when looking at Microsoft purchases.
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Global Equities Research managing director Trip Chowdhry offers a summary of Microsoft’s latest purchases. He says in the note that Microsoft’s acquisitions generally represent the tech titan’s entry too late in the game, such as its purchase of Nokia (NOK) and Skype, the latter of which hasn’t necessarily seen effective implementation in other Windows products.
“It is extremely difficult for a company to acquire insights,” Chowdhry writes.
However, LinkedIn in 2016 isn’t in the same spot that Nokia was in 2013, when Microsoft purchased its handset division. In its last quarterly earnings report, it raised earnings-per-share guidance to $3.30 to $3.40, compared to a Wall Street consensus of $3.19.
Nokia was posting losses per share the quarter before the purchase, and missed revenue by more than $1 billion in the second quarter of 2013. Microsoft ended up writing off the nearly $8 billion deal.
Given LinkedIn’s more-solid fundamentals, there’s reason to believe it’ll perform well under Microsoft. If the LinkedIn purchase bucks the trend Chowdhry sees, however, what does that mean for other social network companies?
It leaves Twitter (TWTR) and Yelp (YELP) as some of the few remaining stand-alone public social network stocks.
Twitter’s tough prospects are well-documented: just this month, four-year-old, still-private Snapchat was found to have more daily active users than Twitter, potentially signaling the end of its decade-long run as the medium of choice for people to quickly share their thoughts.
Yelp is looking healthier after an early-May boost in share price after Greenlight Capital’s David Einhorn revealed a position in the company. Einhorn expects Yelp to double its revenue in the next three years. However, some analysts aren’t so positive and don’t see the stock as an attractive takeover item.
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However, many analysts weren’t predicting LinkedIn would be purchased, either. A few venture capitalists, including Amir Goldman at a panel at the Benzinga Fintech Awards a few weeks ago, were extremely bullish on the stock.
Bullish investors might see the LinkedIn acquisition as a sign Twitter is ripe for a purchase and take a position. Bears could see it as a reason to run away; perhaps Microsoft considered purchasing Twitter instead and backed off.
Either way, Microsoft is priming the world of Microsoft Office to embrace a new, much more social approach to work. You might find yourself connecting with other graduates of your alma mater or peers that share your skills just in the course of normally going about your work.
That could prove very valuable: there’s a body of work that says cities fuel innovation by facilitating random encounters. Maybe making connections through Office 365/LinkedIn will become a digital city of sorts; you might “bump into” people who can assist you as you put together PowerPoint slides or send emails.
That might be either really annoying, or allow for some out-of-the-blue insights. One can imagine dismissing endless LinkedIn notifications in MS Office — or perhaps having a connection pop up when you really need help adding a twist to a project.
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Microsoft has seemed committed to delivering value to its users with its focus on enterprise and the Azure cloud, so there’s reason for hope.
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Social Network Stocks Consolidate With Microsoft’s Purchase of LinkedIn originally appeared on usnews.com
