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Here Are All The Businesses Microsoft Gets With Its $26.2-Billion LinkedIn Deal

Forbes logo Forbes 14-06-2016 Kathleen Chaykowski, Forbes Staff


LinkedIn CEO Jeff Weiner. Microsoft announced on Monday it plans to acquire LinkedIn for $26.2 billion in cash. (Associated Press)© LinkedIn CEO Jeff Weiner. Microsoft announced on Monday it plans to acquire LinkedIn for $26.2 billi... LinkedIn CEO Jeff Weiner. Microsoft announced on Monday it plans to acquire LinkedIn for $26.2 billion in cash. (Associated Press)

Microsoft is getting much more than a job-search website with its $26.2 billion all-cash acquisition of LinkedIn.

The purchase, should it go through, will be one of the largest technology-industry deals on record. And it’s a deal that makes sense for both companies. Microsoft’s largest acquisition to date could make a host of integrations between Microsoft and LinkedIn possible across tools such as Office, Outlook, Calendar and Skype. Even Microsoft’s personal AI assistant Cortana could come into the fold, providing tasks such as telling users the professional background of a business partner before a meeting. LinkedIn’s 433-million members will increase Microsoft’s market and aid its transition from being a desktop software firm to a cloud-computing services provider for business customers. Across Microsoft services, accessing LinkedIn could just be a click away.

LinkedIn could essentially become the “social fabric” behind all of Microsoft’s products, CEO Satya Nadella said Monday  in a conference call with shareholders. “It’s the bringing together of the world’s professional cloud with the world’s professional network,” Nadella said. A variety of business models could be applied to these integrations, from subscriptions to advertisements and social selling, he added. Microsoft also plans to leverage LinkedIn’s education service for professionals, namely its acquisition of video tutorial site Lynda.com.

For its part, LinkedIn said it will retain its distinct brand, culture and independence, with CEO Jeff Weiner reporting to Microsoft’s Nadella and joining the software giant’s leadership team.

It’s also a clear positive for LinkedIn shareholders, as the company i s a fundamentally good growth asset with a healthily diversified revenue base, RBC Capital Markets analyst Mark Mahaney said in note on Monday. The deal will accelerate the growth of LinkedIn’s core businesses. Leveraging Microsoft’s network of more than 1 billion customers, LinkedIn can gain new corporate solutions customers, paid premium subscription members and increase sales of its “Sales Navigator” service and advertising products. What’s more, part of Microsoft’s could also reduce LinkedIn’s overall marketing costs.

While the deal still needs to be approved by LinkedIn shareholders and pass some regulatory steps, here’s what Microsoft is getting from the acquisition, particularly within LinkedIn’s three core business: Talent Solutions, Marketing Solutions and Premium Subscriptions.

LinkedIn’s Outlook: LinkedIn is positioned well in the professional networking and job board space, and  doesn’t appear to be facing substantial, new competitive challenges, Mahaney said. In April, LinkedIn raised its full-year forecast, issuing a full-year revenue guidance of $3.65 billion to $3.7 billion and net income, excluding certain expenses, of $3.3 per share and $3.4 per share. LinkedIn also issued a guidance for second-quarter revenue between $885 million and $890 million and second-quarter net income, excluding certain expenses, between 74 cents and 77 cents. The company is also considered to have a solid leadership team, which should serve it well through the acquisition.

Talent Solutions: Talent Solutions, which mainly serves corporate recruiters, is the biggest sales-generator at LinkedIn, representing about two-thirds of LinkedIn’s overall business. The unit, which includes “Recruiter” and “Referrals” products, has seen strong growth. Revenue in this unit in the first quarter rose 41% from the same period a year earlier to $558 million. LinkedIn said the number of candidates viewed per search is up more than 40% in the first quarter, and InMails per search are up more than 30%. A recent survey from RBC Capital Markets’ Mahaney shows that Talent Solutions customers are satisfied and plan to increase their spending on the service.

Marketing Solutions: This unit sells advertising on LinkedIn properties and is home to LinkedIn’s fastest growing business at scale: Sponsored Solutions. That’s LinkedIn’s version of native native ads, and its revenue growth helps offset declines in display advertising revenue. In the first quarter, the total unit grew 29% from a year earlier, to $154 million. Moving forward, we can expect LinkedIn to launch new products within marketing solutions that will improve monetization and engagement, driven by activity on LinkedIn’s recently revamped mobile flagship app.

Premium Subscriptions: LinkedIn has more than 430 million members, and the first quarter was LinkedIn’s strongest net-add quarter since the beginning of 2014. In the first quarter, Premium subscriptions sales rose 22% year-over-year to $149 million. LinkedIn continues to see solid growth in its user base globally, especially in China, where its flagship app has surpassed 20 million members in China. LinkedIn has been working to improve the functionality of its consumer-facing products, and it seems to be paying off. In the first quarter, a record number of job seekers used its service, up 50% from the same period a year earlier, and more than 6.5 million jobs were on the site. LinkedIn said that it has about 105 million monthly active users. Its revamped app appears to be boosting engagement, both in terms of total page views and the number of users’ daily shares. LinkedIn also plans to introduce salary data on its site.

Sales Solutions: Outside of its core businesses, LinkedIn has been growing its Sales Solutions unit and its Sales Navigator product, which has seen encouraging growth. Sales Solutions is a longer-term focus area for LinkedIn, with the goal of making Navigator the main system of sales professionals. In the first quarter, LinkedIn worked on integrating the tool with CRM systems to help customers gain value faster.

Learning and Development: Education is another long-term area of focus. Last year, LinkedIn acquired instructional video site Lynda for $1.5 billion. Lynda is seeing notable demand from corporate customers, according to LinkedIn, and its Learning and Development unit contributed $55 million to LinkedIn’s revenue in the first quarter. Now, Lynda coursework can be integrated across Microsoft’s services, such as Excel. The fit is natural. Six of the 25 top most popular courses on Lynda.com are related to Microsoft products. Weiner said education services are a priority for him and Nadella. ”People need access to always-on learning and continuous education,”  Weiner said on Monday’s call. According to LinkedIn, traffic to third-party publishers on the site in the first quarter grew more than 150% compared to the same period a year earlier. The company is also building out original content on the site and finding new ways to connect users to skill-building tools such as its presentation tool, SlideShare.

Economic Graph: LinkedIn has been working on a digital map that pin points every person, company, job, and educational organization in the world. Weiner has described this data as a map of the global economy that could help improve economic prosperity by helping guide the flow of capital.

The price — a 50% premium on LinkedIn’s share price as of Friday’s close — is high enough that other bidder’s  aren’t expected to emerge. And it’s very close to the multiple the Mountain View, Calif.-based professional network carried just before its stock dropped more than 40% in February when it issued a disappointing earnings outlook for 2016.

LinkedIn was cofounded in 2002 by its current board chairman Reid Hoffman and went public in 2011, the biggest Internet IPO since Google in 2004. The stock had fallen 42% this year as of the close on Friday on investors’ concern about long-term growth prospects. On Monday, LinkedIn rose 47% to $192.26. Microsoft shares fell 2.6% percent to $50.14. 

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