"Why is LinkedIn worth $26 billion to Microsoft?" : The Big Q

Announced purchase price of LinkedIn is $26.2 billion, all cash deal, for $196/share vs. their closing price of $131.08 (64% premium). Several reasons to pay so much for LNKD:

Microsoft is set to hugely benefit from the $26.2 billion deal:

• 1 .it gets access to over 433 million professionals,and it is already the biggest software provider
• 2. reach around 200+ countries around the globe and hence more people using Microsoft products
• 3. linked in has a 19% growth rate every year and that is enviable
• 4. quarterly member page views stand at around 45 billion
• 5. the Microsoft office will increase in value
• 6. the worlds largest cloud system is now linked with the worlds largest professional network

In short Microsoft is all about to gain big time

The Major Focus is On : Microsoft has always focused on owning the enterprise software space. From Windows, to Microsoft Office Suite, Office 365, Azure, SharePoint, BASIC, the list goes on. They’ve also continued to push assets such as their Surface tablet, or Skype communications, into professional use-cases and investing into projects such as HoloLens. LinkedIn will offer valuable products and services to Microsoft’s enterprise customers to recruit employees, but also give them valuable data and insights into users, a powerful advertising network, Lynda.com, SlideShare, etc.

LinkedIn is worth more than $26 billion:

• It gives a return from its 1% customer base (quite small) but better than Whatsapp’s acquisition for $19 billion presently giving no returns. Initial returns are most important for any acquisition.
• People compare Whatsapp was a boon to Facebook where Microsoft got LinkedIn for a large price to convert it profitable. So lets generalize it. If $1 is charged per year for all Whatsapp users, only 15% of the 1 billion users will remain with the platform. Whereas LinkedIn has 400 million users with around 150 million ready to pay customers. If Office, Azure, Outlook and Skype is integrated for the existing price(it is assumed that LinkedIn charges more now for the subscribers), it may not end up losing customers but gaining paying customers.
• To stay to my point, let me give an example. Ditto TV (pay OTT player from ZEE Entertainment) has 2 million paying customers whereas Hotstar((freemium OTT player from Star Netowork) has 5 million non-paying customers. Which is better. Of course Ditto TV despite less customer base. This comes true to comparison between LinkedIn and Whatsapp.
• Lastly, LinkedIn if bundles basic tools of Office Suite, Microsoft will get more customers at the expense of Google, as these customers would end up using OneDrive, Azure, Skype, etc… and may end up using premium services from Microsoft.

A big Win.