Why It’s Worth Buying LinkedIn Stocks NowAuthor: Kathryn Gaw
LinkedIn has had an interesting year. In February, the firm reported its worst trading day ever, wiping $11 billion off the company’s value , and soon after the company reported an annual loss of $166 million. But then just last month, Microsoft surprised everyone by announcing plans to acquire the social networking site for a massive $26 billion . When the company went public in 2012, it was valued at a relatively modest $8.6 billion, so according to Microsoft, the company’s value has more than tripled in just four years – yet the stock price tells a different story .
LinkedIn shares have been incredibly volatile over the years, and 2016 may be the most volatile year yet. February’s stock drop scared away many investors who have lost faith in the company’s ability to deliver consistent returns. So why is Microsoft prepared to pay so much for it?
The hidden value of LinkedIn
Despite its stock volatility, LinkedIn is still remarkably popular among professionals across the world. In the first quarter of 2016, there were more than 433 million registered users on the site , placing it on a par with Instagram (just under 500 million users ), and dwarfing Twitter’s 310 million users . However, unlike other social media behemoths, LinkedIn has never really capitalized on its huge database. On the contrary, it has been besieged with security concerns and usability complaints . While these issues have certainly been contributing factors in the company’s stock price, they are also easily fixed – with the right expertise, of course.
Microsoft certainly has the expertise. There have been rumors that Microsoft plans to embed LinkedIn with Skype , cornering the market in video conferencing once and for all. LinkedIn also has a vast archive of original, shareable content which could easily be used to drive up SEO hits and further increase its user base. It also has a lot of potential when it comes to customer retention – while Facebook, Twitter, Instagram and Snapchat each appeal to particular age groups; LinkedIn is for everyone. It is used by professionals, job-seekers, employers, and students in just about every country in the world, and once they join, users are unlikely to ‘age out’ of the network – there will always be a reason to keep your LinkedIn account, whether you are networking, hiring or simply snooping on your colleagues.
Under Microsoft’s guidance, LinkedIn has the potential to grow into a hugely profitable, highly effective company which more than justifies its $26 billion price tag.
But in the meantime, the volatility continues. LinkedIn has still not recovered from February’s stock drop, and despite a boost from Microsoft’s acquisition plans, it is still a long way off the highs of September 2013, February 2015 and November 2015.
At the time of writing, there has been no timeline set for the Microsoft takeover, but the company has confirmed that it will pay for the deal by issuing new debt. Debt issuance is a lengthy process which adds months onto the acquisition timeline, meaning that a full takeover is unlikely to happen this year. But it will happen, and when it does there is a good chance that we will see LinkedIn stock soar to new highs, and finally achieve some stability.
In the meantime, stock options can be picked up for less than $200 apiece on the New York Stock Exchange (NASDAQ), offering a bargain entry into a company which has already proved that it has huge growth potential.
And that’s why now is a great time to buy LinkedIn shares.