3 ms·

Well, a key aspect of this, and part of why LinkedIn wanted to sell itself to Microsoft, was that Nadella/Microsoft will allow LinkedIn to operate independently

Well, a key aspect of this, and part of why LinkedIn wanted to sell itself to Microsoft, was that Nadella/Microsoft will allow LinkedIn to operate independently within Microsoft under Jeff Weiner. Microsoft didn't pay "too much," it's just that for the price that they paid, they want to see LinkedIn reduce costs. You have to remember that LinkedIn, despite an earnings report that would make you think otherwise, loses money on a GAAP basis. So Microsoft was fine with paying more as long as they could reduce some of that burn moving forward. That is not an indication that the deal was too expensive in aggregate, it's just how Microsoft thinks about its cash position moving forward.

ufo 10y ago
When you say "make you think otherwise" do you mean that their report is in the red despite large revenue or that they are fudging the books to make the report appear not in the red? (I'm trying to understand what you meant by not being in profit according to generally accepted principles)
- vadym909 10y ago
  Not the OP- it's not fudging. As a business you get to choose what kind of accounting standards you want to follow. When someone says GAAP basis, it means the closest to a good or universally accepted accounting method (or straightforward means of calculating a profit).
  - kgwgk 10y ago
    You don't really have a choice. A company has to provide GAAP financial statements. And can also include non-GAAP financial metrics that "give a more accurate view of the operations and financial situation of the company." But they cannot do anything they want, there are rules imposed by the SEC (for example, they have to explain how to reconcile the GAAP and non-GAAP results). For LinkedIn, from the press release for Q1 results: "GAAP net loss attributable to common stockholders was $46 million and non-GAAP net income was $99 million." https://investors.linkedin.com/events-and-news/corporate-press-releases/press-release-details/2016/LinkedIn-Announces-First-Quarter-2016-Results/default.aspx https://investors.linkedin.com/events-and-news/corporate-pre...
    - joshdickson 10y ago
      You have to provide both, but you can focus on non-GAAP. For instance, earlier this year Facebook and Amazon moved to report on a GAAP basis, having previously focused on non-GAAP.
- joshdickson 10y ago
  The number that they like to emphasize is their non-GAAP income (which is positive), though they report both non-GAAP and GAAP. Many tech companies report non-GAAP financials - that's not unusual. The thing with LinkedIn is that they have a major reliance on stock-based compensation, one of the highest of any tech company as a percentage of their revenue, and they do not include this compensation in their non-GAAP results (the idea here is that these are one time awards that are not "real" ongoing expenses for the company). Issuing stock based compensation is fine, but they issue so much of it that it's an integral part of how their employees expect to be paid (so much so, that the stock taking a nose dive at least in part prompted the board to sell the company to get the stock back up). On the other hand, cash salaries certainly are taken into consideration when calculating GAAP and non-GAAP income. So you have important compensation for employees that they could never operate without rewarding, yet they remove it from their promoted non-GAAP number. I find this dishonest. It's not wrong - in fact, it's probably smart of them to do this! - but it results in them reporting a headline number that's just very removed from reality, and that lets them claim "profitability" while really not being profitable.
BurningFrog 10y ago
> for the price that they paid, they want to see LinkedIn reduce costs I'd expect Microsoft to want LinkedIn to maximize profits. In that equation, the sunk cost of the acquisition should not be a factor.
- nl 10y ago
  I'd expect Microsoft to want LinkedIn to drive users into the MS enterprises ecosystem, not maximise profit on its own.
- joshdickson 10y ago
  Well yes, of course, you don't buy something for $30B that you expect to lose money in perpetuity. But in terms of where the business is right now, they want to see LinkedIn reduce costs while continuing to work toward profitability.

ufo 10y ago

When you say "make you think otherwise" do you mean that their report is in the red despite large revenue or that they are fudging the books to make the report appear not in the red? (I'm trying to understand what you meant by not being in profit according to generally accepted principles)

vadym909 10y ago
Not the OP- it's not fudging. As a business you get to choose what kind of accounting standards you want to follow. When someone says GAAP basis, it means the closest to a good or universally accepted accounting method (or straightforward means of calculating a profit).
- kgwgk 10y ago
  You don't really have a choice. A company has to provide GAAP financial statements. And can also include non-GAAP financial metrics that "give a more accurate view of the operations and financial situation of the company." But they cannot do anything they want, there are rules imposed by the SEC (for example, they have to explain how to reconcile the GAAP and non-GAAP results). For LinkedIn, from the press release for Q1 results: "GAAP net loss attributable to common stockholders was $46 million and non-GAAP net income was $99 million." https://investors.linkedin.com/events-and-news/corporate-press-releases/press-release-details/2016/LinkedIn-Announces-First-Quarter-2016-Results/default.aspx https://investors.linkedin.com/events-and-news/corporate-pre...
  - joshdickson 10y ago
    You have to provide both, but you can focus on non-GAAP. For instance, earlier this year Facebook and Amazon moved to report on a GAAP basis, having previously focused on non-GAAP.
joshdickson 10y ago
The number that they like to emphasize is their non-GAAP income (which is positive), though they report both non-GAAP and GAAP. Many tech companies report non-GAAP financials - that's not unusual. The thing with LinkedIn is that they have a major reliance on stock-based compensation, one of the highest of any tech company as a percentage of their revenue, and they do not include this compensation in their non-GAAP results (the idea here is that these are one time awards that are not "real" ongoing expenses for the company). Issuing stock based compensation is fine, but they issue so much of it that it's an integral part of how their employees expect to be paid (so much so, that the stock taking a nose dive at least in part prompted the board to sell the company to get the stock back up). On the other hand, cash salaries certainly are taken into consideration when calculating GAAP and non-GAAP income. So you have important compensation for employees that they could never operate without rewarding, yet they remove it from their promoted non-GAAP number. I find this dishonest. It's not wrong - in fact, it's probably smart of them to do this! - but it results in them reporting a headline number that's just very removed from reality, and that lets them claim "profitability" while really not being profitable.

BurningFrog 10y ago

> for the price that they paid, they want to see LinkedIn reduce costs I'd expect Microsoft to want LinkedIn to maximize profits. In that equation, the sunk cost of the acquisition should not be a factor.

nl 10y ago
I'd expect Microsoft to want LinkedIn to drive users into the MS enterprises ecosystem, not maximise profit on its own.
joshdickson 10y ago
Well yes, of course, you don't buy something for $30B that you expect to lose money in perpetuity. But in terms of where the business is right now, they want to see LinkedIn reduce costs while continuing to work toward profitability.