Friday, August 5, 2016

Linkedin and Microsoft merger

This is likely the final post in the series critical of Linkedin as a stock proposition.  Last entry in the series.  Microsoft will acquire the company for $26B.  The previous entries go into detail why the stock is relatively worthless.  This final post takes those conclusions for granted.

Linkedin 2Q-2016 results
Another consecutive loss and negative free cashflow.  Though they did significantly outperform guidance based on strong international revenue recovery.  Still their US business is dying, and international spike is more likely a recovery from previous macro headwinds, thanks to refugee migration, than sustainable growth.

The signal of LNKD accepting $26B
Reid Hoffman understands that the company is a piece of shit not worth the $35B market value that it had previously reached.  Previous stock compensation would also get management on board with cashing out, if they understood that the option strike prices they were holding were unreachable.

The mistake in my previous analysis was considering Hoffman an insider of the company.  Its his sole voting discretion to sell the company, and treating the corrupt stock structure that allows management insiders to use the stock as a golden goose to enrich themselves with stock compensation is fundamentally a liability to Hoffman.  The realization that the company is a worthless no margin enterprise, brings up the double edge of stock compensation:  Retaining talent is difficult and causes even more business deterioration when the talent realizes their past compensation is worthless.  A realization that would have occurred as a result of previous stock price drop.

Reid Hoffman understands (by accepting the buyout) that it is unreasonable for him to hope the company would ever be worth $26B (after compensation dilutions).

Microsoft's strategy
There are zero synergies between the businesses.  MSFT's reasons for the acquisition are to go after a different business that makes no money: CRM. (Salesforce.com) which is B2B sales facilitation.  Its reasons for wanting to get into this unprofitable business are only indirectly related to better penetration of its cloud and database services.  Competing with CRM might drive its purchaseable value down to $50B.

Linkedin's non-HR B2B platform (premium subscriptions) is its smallest and most stagnantly growing segment.  It will require significant development and investment to create a platform that competes with CRM.

This strategy theory is not public, but even if terrible, is far less stupid than Nadella's moronic public justifications for the merger.  The reasons for keeping it non public are that it would admit anti-competitive intent towards CRM, and expose the Linkedin membership proposition as a ruse to sell unsolicited (non-job offer) communication access to the membership.  The common mistake in valuing web site membership assets is treating the asset like a 90s cable/phone subscriber that have no other choice but to perpetually pay the membership costs.

If MSFT had any interest in the HR business, it could have bought Monster.com for under $1B, and invest in it to clone linkedin offerings.  Linkedin's enginering metrics (cost of revenue including depreciation (server costs) are the worst in the industry.  MSFT's declaration to leave the company alone admits that it has no interest in leveraging its own IT skills to create value in the business, and admits to seeing no value in the HR industry.

The cost to Microsoft
$26B purchase price is being financed by nearly $20B in bond offerings.  The contracted interest expenses for those bonds are $11.568B over their terms.  The annual interest cost is $530B.

Very optimistic forecasts for Linkedin's growth (consistent with the most bullish analyst projections) will result in $100M incremental annual profit over the next 10 years, and then likely stop growing.  Under this model, profits over the next 11 years will equal the cummulative interest expenses over those 11 years.  Then bring in $1B in profits per year thereafter.

The optimistic profit stream would contribute $500M over interest expenses starting in 2027.  To pay back the $37.5B acquisition costs will take about 86 years.  A different payback calculation is 11 years to pay $5.5B of interest cost.  Another 6 years to repay remaining interest cost balance.  26-52 years to repay debt principal and additional $6B cash purchase price:  43-79 years payback.

Microsoft Stupidity:

Microsoft logic:
  1. Everyone loves to buy Nokia phones
  2. Lets overpay to take them over, then spend massive resources on an operating system for their phones.
  3. If everyone loves Nokia phones so much that they will overpay for them then there is some hope we can make our investment back.
  4. ?
  5. Write off the entire Nokia acquisition years later and close down the division.
The repeat of the Nokia mistake in the Linkedin acquisition is mistaking linkedin members or Nokia customers as captured slaves.  Linkedin members sign up purely in the hope that it will lead to employment opportunities.  Massive development effort designed to leverage assumed captured slaves may not payoff.  43-80 year payback timeframe excluding new development efforts means even lower success probability than its Nokia strategy.

42 comments:


  1. I think the main point here is succession. Cumming/Steinberg have been working on succession for a long time and they really like Richard Handler, having worked with him for a very long time (he brought to LUK some of the best investments).
    Merger and Acquisition valuation

    ReplyDelete
  2. This comment has been removed by a blog administrator.

    ReplyDelete
  3. This comment has been removed by a blog administrator.

    ReplyDelete
  4. This comment has been removed by a blog administrator.

    ReplyDelete
  5. This comment has been removed by a blog administrator.

    ReplyDelete
  6. Thanks for sharing the post.. parents are worlds best person in each lives of individual..they need or must succeed to sustain needs of the family.
    Company Formation Singapore

    ReplyDelete
  7. This comment has been removed by a blog administrator.

    ReplyDelete
  8. I recently came across your blog and have been reading along. I thought I would leave my first comment.Houston tax services I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

    ReplyDelete
  9. This comment has been removed by a blog administrator.

    ReplyDelete
  10. This is very interesting content! I have thoroughly enjoyed reading your points and have come to the conclusion that you are right about many of them. You are great. linkedin recommendations

    ReplyDelete
  11. This comment has been removed by a blog administrator.

    ReplyDelete
  12. It won't be this tough forever, but for now, putting some growth strategies into action may be what keeps your business alive, if not thriving.try here

    ReplyDelete
  13. Your website is really cool and this is a great inspiring article. Thank you so much. solution manual

    ReplyDelete
  14. Google will win both the battle of appearances and the battle on the field. Very few strategies offer such flexibility and power.timesheet solution for office team

    ReplyDelete
  15. . Also, formation and usage of the depreciation fund which is the part of financial domain,home page

    ReplyDelete
  16. First, finances overcome the bounds of distribution and redistribution service of the national income, though it is a basic foundation of finances.Eugenia Cox

    ReplyDelete
  17. This leaves only two options and one is leasing an automobile, which can become another monthly expense, or the better choice will be to finance a car by applying for one of the many car finance loans available for the purpose of helping those who would like to buy an automobile, but are unable to afford the cost of buying and or leasing one. big picture cash loans

    ReplyDelete
  18. Bill of lading and other export and import documents are used as a guarantee to take loan from banks and that loan amount can be used as finance for a short time period.Check this out

    ReplyDelete
  19. They're packaging these items up and then selling them as packaged items. Sometimes that value added process of packaging it, bulking it and then selling it will be enough for the factor or P.O. financer to look at favorably.Greitieji kreditai

    ReplyDelete
  20. This is called "flat fee". Apart from the flat fees, the plaintiff has to pay a minimum fee every month, called "recurring fees", to the lawsuit financing company. learn this here now

    ReplyDelete
  21. This blog had an extremely strong impact on me.
    Changelly echange

    ReplyDelete
  22. Typically when we sit down with clients this type of financing revolves around the requirements of the supplier, as well as your firm's customer, and how both of these requirements can be met with timelines and financial guidelines that make sense for all parties.תביעות קטנות

    ReplyDelete
  23. Environment should not be forgotten even if you are becoming successful. As this site suggested, it is a good persuading techniques for people so that they are both helping the humans and the environment.
    Check this out

    ReplyDelete
  24. Advance deals might be using a credit card while buys are on money. So here and now finance is expected to coordinate these disequilibrium.official statement

    ReplyDelete
  25. This blog is truly awesome. The data here will definitely be of some assistance to me. Much appreciated!.
    inkasso

    ReplyDelete
  26. "The system of creation and usage of necessary funds of cash resources for guarantying socialistic widened further production represent exactly the finances of the socialistic society.Hashflare review

    ReplyDelete
  27. EasyLoan88 is Malaysia licensed moneylender (syarikat pinjaman wang berlesen) offering personal loan, business loan and fast loan.
    EasyLoan88

    ReplyDelete
  28. But in a business with fluctuating sales and margins, financing cash flow has to be another criteria built into sales and marketing activities.Atrie krediti

    ReplyDelete
  29. מרבית העסקים בארץ לא מצליחים להיות רווחיים מהסיבה הפשוטה שאינם מצליחים לבצע גבייה מלקוחות בצורה נכונה וטובה. על מנת שעסק בארץ יישאר רווחי ותחרותי וישרוד לאורך זמן, עליו להבין כי גביית הכספים מהווה חלק חשוב וקריטי בתהליך.
    ברוב הפעמים משתמשים בעובד מתוך המערכת לשם טיפול גבייה מלקוחות. אותו עובד בדרך כלל עסוק בעוד כמה דברים בעבודתו השוטפת ולא תמיד מתפנה לביצוע ומעקב שוטף על החובות, אין מערך גבייה מסודר! כך שנוצר מצב שהחובות גדלים ומצטברים ובאופן ישיר רווחיות העסק קטנה.... וחבל.... Kal Collector ידאג לפנות את אותו האדם לעבודתו השוטפת, ולהתעסק בעבודת הגבייה (שנתפסת כפחות נעימה לביצוע) ולך, בעל העסק ליהנות מרווחים גבוהים יותר.

    ReplyDelete
  30. מרבית העסקים בארץ לא מצליחים להיות רווחיים מהסיבה הפשוטה שאינם מצליחים לבצע גבייה מלקוחות בצורה נכונה וטובה. על מנת שעסק בארץ יישאר רווחי ותחרותי וישרוד לאורך זמן, עליו להבין כי גביית הכספים מהווה חלק חשוב וקריטי בתהליך.
    ברוב הפעמים משתמשים בעובד מתוך המערכת לשם טיפול גבייה מלקוחות . אותו עובד בדרך כלל עסוק בעוד כמה דברים בעבודתו השוטפת ולא תמיד מתפנה לביצוע ומעקב שוטף על החובות, אין מערך גבייה מסודר! כך שנוצר מצב שהחובות גדלים ומצטברים ובאופן ישיר רווחיות העסק קטנה.... וחבל.... Kal Collector ידאג לפנות את אותו האדם לעבודתו השוטפת, ולהתעסק בעבודת הגבייה (שנתפסת כפחות נעימה לביצוע) ולך, בעל העסק ליהנות מרווחים גבוהים יותר.

    ReplyDelete
  31. Hard money loans are specific type of asset-based loans which a borrower receives funds and is secured by the value of a parcel of real estate. Hard money loans are typically issued by private individuals/investors or companies. Interest rates are usually higher than conventional the lenders. money lender Singapore

    ReplyDelete
  32. Further sales may be on credit while purchases are on cash. So short term finance is needed to match these disequilibrium.Contabilitate Iasi

    ReplyDelete
  33. I appreciate everything you have added to my knowledge base.Admiring the time and effort you put into your blog and detailed information you offer.Thanks. visit website

    ReplyDelete
  34. Certain co-agent social orders can organize here and now money related help for businesspeople.Property development finance

    ReplyDelete
  35. There are various strategies that can help purchasers in financing a business. Purchasers must perceive their accessible assets, for example, the vender, moneylenders, and financial specialists.Regnskapsfører

    ReplyDelete
  36. This finance is required to meet the medium term (1-5 years) prerequisites of the business.the cost

    ReplyDelete
  37. Additionally, arrangement and utilization of the devaluation finance which is the piece of money related area.check out loanize.co.uk

    ReplyDelete
  38. This comment has been removed by the author.

    ReplyDelete
  39. The thought here is to deal with all parts of your financial arrangement. Put this sum into a bank account until the point that it develops sufficiently vast to open a speculation record, for example, a shared reserve.InquiryRemoval.io

    ReplyDelete
  40. When considering non-movie numbers for estimating present value, one is then also acknowledging the fact that the Force, indeed, has been awakened. This intangible asset has been valued at infinity. Companies That Know How to Acquire

    ReplyDelete