On June 13, 2016, Microsoft announced its largest acquisition ever when it agreed to buy out LinkedIn (despite declining revenue growth rates) for $26.2 billion in an all-cash deal.
The acquisition is one of the biggest ones that Microsoft has made and comes just two and a half years after Satya Nadella, took over as CEO of the company. Nadella has totally reenergized Microsoft and is a leader who is not afraid to make bold moves to shift Microsoft away from its plodding and doddering ways under ex-boss, Steve Ballmer.
Keep in mind that most of Microsoft's biggest acquisitions (Nokia, a-Quantive, Yammer to name a few) came before Satya Nadella took over as CEO and at best have met with extremely limited success. Nokia and aQuantive have been largely written off by the company already.
So, what did Microsoft get in return with LinkedIn, the business focused social networking website? For starters, LinkedIn claims 467 million users as of Q3:16. The company does not reveal how many premium or paid subscribers they have.
At the time the acquisition was announced, Microsoft was paying roughly 8x estimated LinkedIn revenues for 2016 and 6.4x estimated revenues for 2017.
For the most part, the LinkedIn acquisition has been lauded as a good one by Satya Nadella and Microsoft, after the initial hue and cry was over with.
So, if Microsoft and Satya Nadella had the stones to buy out LinkedIn at 8x and 6.3x estimated 2016 and 2017 revenues respectively and have received praise for the move, why is an acquisition of Netflix considered expensive at similar multiples given far better metrics (subscriber growth rates, size, scope and global reach of subs, revenues growth rates) ?
The argument against a Netflix acquisition makes very little sense from where I sit.
So, let's say if Apple or Google or Amazon or even Disney were to offer a similar multiple for Netflix,we are looking at an acquisition price for Netflix of roughly $70 billion to $71 billion. More importantly, Netflix revenue growth rates for the next 5 years are estimated by Wall Street to be higher than that of LinkedIn at the time of acquisition.
For the acquirer comes a global distribution network paralleled by no one else and for Netflix they get the deep pockets and combined content that would leave the competition basically in the dust.
In addition, right off the gate, a Netflix acquisition would make far more sense, if acquired by any of the companies named in the above paragraph, than the LinkedIn acquisition by Microsoft did at the time of announcement.
(Long nflx, aapl, googl, amzn, long and short options on all)
