Professional social networking service, LinkedIn (LNKD, Financial), recently acquired the privately held online education company Lynda.com for a reported $1.5 billion that was split into cash and corresponding shares. Many people were surprised by the purchase of the educational portal for such a high amount. Tom White, an analyst from Macquarie expounded on the fact that LinkedIn had seen an opportunity many haven’t as yet realised and seized it. LinkedIn according to White have made their grand entrance into the highly lucrative $30 billion online learning industry.
The deal
Many investors may not have been aware of the privately owned online learning company but clearly someone at LinkedIn was. For Lynda, a company that has been around since 1995 working mainly with subscription based online learning courses and online learning video tutorials based in Carpinteria, California this is a welcome purchase. The deal will be sealed with a 52% cash sale and a 48% stock transfer. The acquisition is expected to be finalised in the second quarter of the year.
For the networking company that launched in 2003, the purchase of Lynda was done as one of the first steps towards strengthening the outlook on providing a wider base of services. LinkedIn is looking to the future now and is set on not only building and maintaining its current customer base, that records an impressive 184 million users world-wide on a monthly basis but also on providing additional services through its platform.
Details as to just how LinkedIn planned on integrating Lynda into their system have not yet been disclosed, but analysts like Tom White predict that LinkedIn is likely to incorporate the online learning platform through a portal connected via LinkedIn whereby users can access the resources found at Lynda by paying a premium subscription. This proves a very viable option when considering that LinkedIn doesn’t need to do any marketing except to its wide client base, especially those who would like to further their education in the comfort of their own homes.
The impact
So what did this news mean for the happy shareholders of LinkedIn? The day the news was announced the company’s share price went up and left many investors smiling. Prior to the acquisition of Lynda, LinkedIn shares were at $245 a share (April 6, 2015), but hours after the news of the company purchasing Lynda were out, the share price raced to $265 a share (April 10, 2015), up by more than 7.5%.
However, despite this increase in the price of stock, some sceptics remain as to whether investors should be spending a whole lot of money in buying the LinkedIn stock. Chris Laudani of Real Money Pro asks the pertinent question of why LinkedIn isn’t making as much money as other companies in the Internet Software and Services industry, when compared to other companies in the internet services industry such as Facebook (FB, Financial) and Yelp (YELP, Financial).
Comparing Facebook and LinkedIn, the two platforms do not require payment to join and utilise user generated content, and both of them have a great deal of webpages. So why is it that Facebook has an operating margin of 44% and LinkedIn has an operating margin of only 1%? LinkedIn even has an 88% gross margin over Facebook’s 81% and yet it is beyond analysts’ understanding as to why LinkedIn isn’t pulling in the numbers that it should be bringing in.
Our take
Could it be that with the purchase of Lynda.com, LinkedIn will begin to start showing more profitability in the long run? Could it be that as LinkedIn begins to focus more on expanding its services that they will begin to see more of what they and many investors have hoped for? Could Lynda be the magic pill that changes their fortunes around? Only time will tell.
