Nadella Bullish About LinkedIn and Minecraft Growth

When Microsoft announced that it has agreed to acquire $26.2 billion back in June, it raised a lot of eyebrows. The huge price tag was triple the amount it paid for Skype back in 2011, then Microsoft's largest acquisition. The jury is still out on that one but Microsoft's two other megadeals -- Nokia's handset business for $7.2 billion three years ago and aQuantive for $6.3 billion in 2007 -- were busts, and overall Microsoft's reputation for monetizing large acquisitions is poor.

But none of those deals were pulled off by current CEO Satya Nadella, who wrote off most of Nokia. The first major acquisition by Nadella, game maker Mojang, which Microsoft acquired two years ago for $2.5 billion, appears to be paying off. The company's flagship game Minecraft recently announced it has sold 100 million copies to date, making it the second-best-selling game in history. Nadella pointed to its success and his optimism that the LinkedIn deal will be a catalyst for Microsoft's growth in an interview last week with Bloomberg's Dina Bass.

"When I look at both Minecraft and LinkedIn, they're great businesses that are growing," Nadella told Bass. "And so, in fact, if anything, our core job is to take that franchise and give it more momentum. In the case of Minecraft, it's the biggest PC game, and we are the PC company. Their growth was moving to console. We have a console. Therefore, we were a perfect owner. Same thing with LinkedIn. They're a professional network for the world. We have the professional cloud. Time will tell, but I'm very, very bullish."

Indeed, LinkedIn surprised analysts last week with a much better earnings and revenues than expected. While the company posted a dismal loss of $119 million, non-GAAP earnings of $1.13 per share handily exceeded expectations of $0.78 per share, while revenues of $933 million for the quarter increased 31%. Also worth noting is that membership grew from 433 million to 450 million members per month and the member page views increased 32 percent, yielding 21% year-over-year growth in page views for each separate member accessing the service, the company said.

While indeed $26.2 billion is a huge price tag for any acquisition, Microsoft is effectively paying $58.22 per member, nearly $2 less than the $60.04 at the time the deal was announced, now that the member roster has increased.

There are plenty of skeptics wondering whether the deal will prove to be worth its weight in gold, including Microsoft MVP and Redmond contributor Brien Posey. 

A survey we fielded July of Redmond magazine subscribers found more than one-third of the respondents (37 percent) believe acquiring LinkedIn was a smart move by Microsoft and that it will live up to its promise of helping the company create new ways for people to connect with people through its core offerings, including Office 365 (see this month's Redmond cover story). Only 22 percent believe it was a bad deal, with the remaining 42 percent said it's either too confusing to predict or it has no obvious upside (but poses little risk). A formidable number of respondents, 40 percent, believe Microsoft will make LinkedIn much or somewhat more useful, while 31 percent believe it will become much or somewhat less useful. The remainder don't anticipate significant change, or have no opinion.

Posted by Jeffrey Schwartz on 08/08/2016 at 1:04 PM