LinkedIn Corp (LNKD) Makes Microsoft Corporation (MSFT) Look Savvy

In retrospect, Microsoft Corporation (NASDAQ:MSFT) may have timed its acquisition of LinkedIn Corp (NYSE:LNKD) perfectly. If it had waited until after the release of its solid third-quarter growth numbers following Thursday’s closing bell (bolstering solid second quarter growth numbers), LNKD shares may have been priced too richly. Had it made the deal prior to mid-June, it may not have known what it was getting.

LinkedIn Corp (LNKD) Makes Microsoft Corporation (MSFT) Look SavvyThrow in the fact that LinkedIn is also working on a data center infrastructure that may well give Microsoft a way to compete with the likes of Cisco Systems, Inc. (NASDAQ:CSCO) and Juniper Networks, Inc. (NYSE:JNPR), the acquisition may end up being even better than anticipated.

Either way, one final look at LNKD stock as a standalone name is merited.

LinkedIn Earnings

For its fiscal third quarter of the year, LinkedIn earned $1.18 per share on $960 million worth of revenue. The top line was slightly better than the expected $959 million, but the bottom line trounced expectations for a profit of only 91 cents per share of LNKD stock. Revenue was up 23% year-over-year, while per-share operating earnings grew 51%, extending what’s become a very respectable growth trend.

Memberships at the professional networking site grew as well. LinkedIn membership grew by 17 million to 467 million accounts during the quarter in question, up 18% on a year-over-year basis.

Perhaps more important, LinkedIn swung to a GAAP profit. Net income of $9.1 million was the first quarterly profit the company has turned in over a year, and marks a wide turnaround from the $46.9 million loss it booked for the third quarter of 2015.

CEO Jeff Weiner commented “In Q3, continued product investments across our platform drove another quarter of strong engagement and financial performance. As we look forward, our combination with Microsoft creates the opportunity for us to dramatically increase the impact and scale with which we deliver value to our members and customers.”

Between the trajectory LinkedIn is on and the potential synergies a pairing of it and Microsoft could foster, MSFT investors have a lot to be smiling about today … even more knowing the $26.2 billion price tag is locked in regardless of how much more valuable LinkedIn may have just proved it was.

Another Reason MSFT Stock Owners Should Smile?

While the synergies between a business-oriented LinkedIn and productivity-oriented Microsoft are clear, one has to wonder if there was more to Microsoft CEO Satya Nadella’s decision to purchase LNKD than just the leverage he could apply to LinkedIn’s membership.

Although it’s not a secret per se, the work LinkedIn had been doing in the arena was secretive. That work? Rather than purchase an off-the-shelf hardware from names like Juniper and Cisco — and be relatively beholden to their architecture and pricing — LinkedIn has opted to develop its own data center architecture.

While LinkedIn’s project director Ali Kahn says the effort is not for commercial purposes but rather to put LNKD in charge of the experience it delivers, the fact is, this home-grown solution, which can be implemented at a fraction of the normal cost, presents a compelling possibility for Microsoft … even if only to use for itself.

The Last Word on LNKD Stock

MSFT is still paying something of a fortune for LinkedIn, offering $196 in cash per share of LNKD stock as part of the deal that is expected to be closed before the end of the year. LinkedIn has only generated $3.43 billion in revenue for the past twelve months, and only turned a minimal GAAP profit in the most recent of its last four quarters.

It’s not where LinkedIn is that really matters, however. It’s where it’s going. And where it’s going is pretty impressive on its own.

As of the latest look, LinkedIn was on pace to grow operating earnings by 34% this year on a 26% growth rate in revenue. Next year’s earnings per share of LNKD (pre-merger) are projected to be up 22% on a 20% improvement in sales, And, bear in mind LinkedIn has a strong history of beats for the top and bottom line.

MSFT shareholders have a lot to look forward to, as the impending pairing should make LinkedIn’s good and improving numbers even better.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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