How Analysts See Microsoft-LinkedIn Deal?

Analysts have mixed reviews relating to software company's largest deal till date

LinkedIn has been downgraded by several analysts after its acquisition by Microsoft Corporation. The software giant announced the acquisition on Monday after which the social network’s shares shot up. But, now the analysts have lowered the shares rating and put them at “Neutral” or the equivalent.

The latest acquisition has been the largest deal made by Microsoft to date –hefty sum of $26 billion indicates that the Redmond, Washington firm intends to buy the Mountain View, Calif. firm for $196 per share. According to the analysts, that’s the threshold for the social network firm and they’ve set the price target at or close to $196.

Last week, analyst from RBC Capital Markets Mark Mahaney upgraded Californian social network to “Outperform” while setting the price target at $160. Later, this week, following the surprising acquisition of the company he modified the price target and took it at $196 –mirroring the offer price –while simultaneously downgrading the stock to “Sector Perform.” 

Overall, Mahaney is quite optimistic in relation to the deal and has been speculating impressive synergies in the areas of Marketing and Sales. He also highlighted that the deal terms reflect LinkedIn’s pre-February’s valuation.

In the similar fan Heath Terry and team –analysts from Goldman Sachs –increased the previous price target of $162 to $203 and downgraded the stock rating to “Neutral.” They also moved the social network up in their ratings for mergers and acquisitions.

Amidst all the optimism, there are several analysts which are wary of Microsoft’s decision at such exorbitant price. This pessimism cannot be passed as the software giant had recently had worst experience in the field relating to Nokia’s acquisition. The company had to waive a major chunk off its financials to reflect the loss.

Post the announcement, Walter Pritchard, an analyst from Citi has been quite bearish on the software company. He has maintained a “Sell” rating for the stock while placing the stock at a price target of $36. Mr. Pritchard has speculated that most of the revenue for the software giant will be coming from its core products –Office and Office 365 instead of social selling. Although he agrees with the integration of social network in selling its product however he believes that the price paid for such strategic rationale is too high. According to him, CEO’s Satya Nadella experience of three years is a bit pre mature for him to form an opinion relating to Mr. Nadella’s ideology behind this acquisition. In the past, the management of the software titan had only opted for acquisition when it had found itself “stuck in a tough place strategically.”

In the strong competitive market, Microsoft ought to come up with solid strategies which can help it strengthen its bottom line. For LinkedIn, the acquisition is very fruitful but the software firm had had bad experience with regards to acquisition.

Mr. Nadella and LinkedIn’s Jeff Weiner could transform their methodologies into reality then the largest acquisition of Microsoft can guarantee strong and bolstering revenue figures for Washington based organization.