Microsoft acquisition of LinkedIn came as a surprise to most but doesn’t look bad on paper
The seemingly calm atmosphere surrounding the Microsoft Corporation (NASDAQ:MSFT) was energized by a wave of shock as the company announced the acquisition of LinkedIn Corp (NYSE:LNKD). The acquisition doesn’t quite go well with the recent policy changes at Microsoft and most analysts and investors did not anticipate such a happening. Despite the news coming as a major surprise, the stock price has remained flattish flirting with the $50 price range.
Bernstein analyst Mark Moerdler believes that despite the acquisition being out of ordinary course of action, it is nonetheless, reasonable. Mr. Moerdler explains that the acquisition has come as major shock to many because according to the management’s recent commentary Microsoft was only looking to acquire a small Internet related business and by definition LinkedIn is nowhere near “small.” Furthermore, it would seem that the decision to acquire the social networking giant was made rather hastily given the lack of rumors and speculations. Another reason behind the shocked reaction can be attributed to nature of revenue LinkedIn generates. Microsoft was expected to acquire a business with more robust revenue model as compared to LinkedIn.
Despite the underlying circumstances, LinkedIn is a reasonable acquisition, asserts the analyst. It is a unique kind of business network that has been gaining traction and growing. Furthermore, it is now a matured assets and the costs associated with building such a network from scratch might be far more than calculated. LinkedIn has a very vast and rich database that has information on a large number of professionals and businesses and it can be used by Microsoft in order to produce and market products more efficiently.
The analyst reiterated an Outperform rating and believes that Microsoft can add value to its recent acquisition by employing newer monetization tactics. There are a total of 36 analysts covering the stock, out of which eight rate the stock as a Strong Buy, 13 say Buy, 12 rate it a Hold, one recommends an Underperform and two rate it as a Sell. The stock now trades at $50.06 in the premarket treading close to $50 market.