Microsoft's Acquisition of Linked-In: Financial Sense

Microsoft may have overpaid for the acquisition. At 8 times TTM Revenue (TTM: Trailing Twelve Months is a measurement of a company’s financial health; TTM is top line for the twelve-month period immediately prior to the date of the report.), Linked-In’s valuation is on the higher side (as compared to 5.1x for tech comparables) and had Microsoft waited for few months, it could have got Linkedin much cheaper in an environment of increasing US interest rates. Moreover, given the tax implications of using Microsoft cash parked outside US, Microsoft has to incur debt to fund the purchase.

On the positive side, Microsoft marketing spends have gone up from USD 2.5 bn (2013) to USD 15.7 bn (2015) (Source: https://www.statista.com/statistics/506534/microsoft-sales-marketing-expenditure). With this acquisition, marketing spend is expected to significantly go down. Assuming a cost saving of USD 5 bn/year would result in pay off within 6 years (ignoring profits from new synergy and from other/new sources).