Markets
FB

Microsoft Corporation (MSFT) Buying LinkedIn Corp (LNKD): $26 Billion Down the Tubes?

InvestorPlaceInvestorPlace - Stock Market News, Stock Advice & Trading Tips

I recently gave my thoughts to CNBC 's Martin Soong on Microsoft Corporation 's ( MSFT ) $26 billion takeover of LinkedIn Corp ( LNKD ).

Microsoft Corporation (MSFT) Buying LinkedIn Corp (LNKD): $26 Billion Down the Tubes?

Source: Mike Mozart via Flickr (Modified)

While I am a long-time MSFT bull, the company has a terrible track record on acquisitions.

For example, consider the following: the $7 billion purchase of Nokia in 2013 (which was effectively written down to zero), the $6 billion purchase of online advertiser Aquantive in 2007 (which was also effectively written down to zero) and the $2.5 billion purchase of Minecraft maker Mojang in 2014.

While Minecraft might actually be profitable for Microsoft, it was still a strange acquisition that didn't seem to make much strategic sense at the time … and it still doesn't. And of course, the largest acquisition prior to the recently announced LNKD purchase was the $8.5 billion MSFT paid for Skype in 2011.

I love Skype and use it almost daily. But as much as I like both Skype and Microsoft, I don't see that MSFT has done much to monetize Skype or even to push for its wider acceptance. In a world in which new messaging and voice apps pop up every other day, Skype seems to be withering on the vine.

So, Microsoft's track record on acquisitions has been just about awful. But will the $26 billion purchase of LinkedIn be any different?

Is LNKD the Turnaround Acquisition MSFT Needs?

Let's consider the numbers. LinkedIn seems to have the same fundamental issue that every other social media company other than Facebook Inc ( FB ) does. It doesn't have much of a business model. It has lost money in six of the last eight quarters, and it shows no sign of breaking that streak any time soon.

Some of this is growing pains; the company has more than doubled its revenues since 2013. But that's still a long string of losses for a company LNKD's age.

Yet, despite the earnings disappointments, the stock still isn't cheap. It trades for 8 times sales. Given MSFT's track record with acquisitions, it's hard to see even the most optimistic scenario justifying that kind of a valuation.

Satya Nadella has done a fine job of rebuilding Microsoft as a cloud-focused business services company, and perhaps this is part of some greater plan. MSFT has specifically mentioned data mining LinkedIn's vast mountains of data as a major selling point.

But Microsoft's biggest problem in its acquisitions has been its inability to integrate them well (see Skype as an example).

Overall, I'd consider this a bad trade for Microsoft. With over $100 billion in cash, MSFT can make the occasional extravagant purchase like this without many consequences. However, it is worth noting that Moody's did put MSFT's AAA credit rating under review in response.

Charles Sizemore is the principal of Sizemore Capital , a wealth management firm in Dallas, Texas. As of this writing, he was long Microsoft.

More From InvestorPlace

The post Microsoft Corporation (MSFT) Buying LinkedIn Corp (LNKD): $26 Billion Down the Tubes? appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

FB MSFT

Other Topics

Stocks

Latest Markets Videos