This blog is more about insights for you and me as individuals in our society, in light of this transaction. If you are looking for the rationale for this deal– here is the link.
The Obvious, Maybe Subtle
Many mergers and acquisitions have backdrop stories of egos triumphing logic. In this case, it seems to be a more well thought out and methodical marriage of two players in the professional world. Yet, they are complementary within the same space. That showcases a big picture regard and healthy respect for the regulatory criteria.
On a tactical level, the graph below could provide the big impetus- LinkedIn challenge is daily login of more users.
LinkedIn has morphed into a site beyond job search. Yet, the world at large, outside the tech world, love to keep their thinking simple. As a LinkedIn heavy user and evangelist living in Houston, LinkedIn is seen as a job search site than a personal brand builder on the professional side backed by people networks. It may be few years before the brand perception rallies around to the long-term vision. And the need is time. Time is best captured under a larger umbrella without the quarterly microscope of earnings. Or a smarter way would be to blend with professional tool that is used everyday. Microsoft comes to mind on both counts.
The Far-Reaching: Value of Models in Valuing Tech Companies
“Do you know what is the anathema of many traders?” a seasoned, sharp analyst asked me during my formative years as a junior analyst. With pride, he answered his own question, “Lack of volatility. Without yo-yo of the stock price , the impetus of users to revisit the markets is muted.” After many years, I tend to agree with it behaviorally. Engaged users is a need whether it is stock markets or social platform like LinkedIn. LinkedIn found an avenue by joining hands with Microsoft. Stock markets still rely on volatility.
I often wonder what caused the LinkedIn share price to swing so much in the last few years? Looks like the $196/share purchase price is closer to the long term average price of the stock. Would the incentive be so compelling to be acquired, if the stock was disciplined on a long term price trajectory rather than the yo-yo?
Why bring this up? Airlines have consolidated; the recent low oil prices have not translated into reaping benefits for you and me.
Extrapolating to something closer home – our data and how we reach others [distribution] – I see more such transactions like LinkedIn and Microsoft happening. Why? The short-term focus of publicly traded stocks on one side and cash rich tech majors on the other brings about buying moments.
Through the years, a bet on Exxon stock is a high level bet on oil prices. In the future of conglomerates, the investor bets are not that clear. One thing is clear – our choices could be fewer. “Drinking the Kool Aid” super optimistic view of tech stocks and then dropping them like hot potato will only accelerate consolidation.
The Nuanced: Value of your Data
Pre-internet days, I found a safely guarded phonebook in the house. It also backed up as an address book. It was usually near the phone. I did not know its value. I had a good idea what my TV would be worth if I had to sell it. Now we have data points on what the address book is worth for leasing/sharing with the outside world.
Facebook bought Whatsapp few years ago. Radio talk show hosts were amazed at the price. I was not. The access to the phone book was implicit to this app – you shared your phonebook in return for the free app. And that trade was worth $42 per phonebook.
Today, we have a second data point. Keeping the math very simple, the professional address book is worth $60 per LinkedIn user. [26.2 Billion and 433 million users] This does not factor in value of social network data, adjustment for cash and active users.
It warms my heart to know that our data has value and ballpark quantification is a start. Such transactions reveal our side of the worth.
[First published on LinkedIn by Karthik Ranjan.]