Here’s What Microsoft’s Acquisition of LinkedIn Means for Earnings

Photo Credit: Mike Mozart

Earlier this morning, Microsoft sent shockwaves through the finance industry with its announced takeover of Linkedin. The deal valued at $26.2 billion is the biggest in Microsoft’s history and combines its fast growing cloud computing services with the equally rapidly growing online network.

The offer of $196 per share represents a nearly 50% premium from LinkedIn’s closing price on Friday. Since the announcement, Linkedin stock, as you would suspect, has popped up over $190 per share while Microsoft is down nearly 3%, with investors questioning the rationale behind the deal.

LinkedIn will operate as an independent entity in Microsoft’s productivity and business process segment. It will maintain its branding and product while Linkedin CEO, Jeff Weiner, will now report to Microsoft CEO, Satya Nadella.

The acquisition is big for both sides. Microsoft is now able to enhance its strategy to build out services for enterprises and more effectively compete against the likes of Salesforce. Microsoft plans on using LinkedIn’s social graph alongside its existing products as a means to transform the sales cycle with actionable insights. LinkedIn will give Microsoft a wider reach in terms of social networks and professional content. 

For Linkedin, it puts to rest any question of what the company needs to do compete in a highly concentrated industry. After falling well below its 52 week high of $258 per share, the deal is considered a steal for LinkedIn.

Both LinkedIn and Microsoft shouldn’t expect to see any material impact on earnings this quarter. At worst, the acquisition will put pressure on Microsoft’s margins but not enough to significantly influence its report. The expected synergies should boost earnings as soon as the second half of 2016 and at the latest by 2017

Regardless, the Estimize community is bullish that Linkedin can deliver another beat in its second quarter earnings report on July 28. Estimates have seen favorable revisions activity since its last report and are now projecting a 41% increase in earnings and 26% in revenue. Microsoft, on the other hand, has seen estimates cut in the past 3 months with growth expectations relatively muted for its fiscal fourth quarter report.

In a week that has Apple’s WWDC conference, a FOMC meeting, and ongoing rumors about Brexit, Microsoft’s takeover of LinkedIn was just what investors needed to start their Monday morning. The biggest takeaway from the deal is that large tech companies aren’t afraid to shake things up with a multi billion dollar acquisition. LinkedIn’s sale gives hope to Twitter investors that an acquisition is possibly in the works. Twitter shares have increased 8% this morning on new speculation that an acquisition is looming.