LinkedIn Is The Latest Tech Company To Give Up On The Stock Market
After all, LinkedIn, a must use social network among job seekers and corporate human resource departments, is agreeing to an acquisition that doesn’t even return the company to its beginning of year share price. Some might look at LinkedIn’s $26.2 billion pricetag as a middling feat of deal-making for CEO Jeffrey Weiner and billionaire founder Reid Hoffman.
But Microsoft’s takeover solves a major problem for LinkedIn. The company’s high 20%-to-mid-30% revenue growth simply was not enough to appease increasingly flighty stock market investors, who abandoned LinkedIn at the beginning of 2016 on earnings results and guidance that would amount to a banner year for most other large tech firms.
In February, LinkedIn saw its shares plunge over 30% after announcing full-year results and guidance that fell short of investor expectations. The plunge took LinkedIn to multi-year lows not hit since mid-2012, when the company was a third of its size. By mid-month, LinkedIn was testing prices below $100 that it hit on its first day of trading five year ago.
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| LinkedIn CEO Jeffrey Weiner, Microsoft CEO Satya Nadella, LinkedIn founder Reid Hoffman |
CEO Jeff Weiner has ably (and quietly) steered LinkedIn since its May 2011 initial public offering, and founder Reid Hoffman has remained as chairman of the company, providing stability and a consistent strategic focus.
During its life on public markets LinkedIn has carved out a strong, cash generating niche in the crowded world of social networking by focusing on jobs and career networking, offering HR departments a bevy of new tools to screen for candidates. LinkedIn has tripled its revenues since 2012, and the strength of its business model is also reflected in its balance sheet, which carries $3.16 billion of cash and cash equivalents and just under $1.4 billion of convertible and long-term debt.
It turns out the problem for LinkedIn was that it reported *just* a 34% increase in fourth quarter sales as its online ad sales grew 20%, or roughly half its previous rate of growth. It also offered guidance of about 25% sales growth in 2016. To be sure, those figures represented a slowing from the 40%-plus sales growth rates LinkedIn enjoyed in previous years. But the market reaction was swift and brutal.
By mid-February, LinkedIn, which opened 2016 at over $220 a share, was testing $100. The tumble shaved a cool $1 billion from founder and chairman Hoffman’s net worth.
Now, after a four month stay in the stock market doldrums, LinkedIn is back around $200. Microsoft’s takeover shows investors were wrong to dump LinkedIn en masse. It turns out the February plunge coincided with a deepening of M&A discussions between LinkedIn and Microsoft. If Weiner and Hoffman decided they were tired of myopic stock market investors, who would blame them?
In Fact, LinkedIn’s 2016 round trip is not a unique phenomena.
source: forbes
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