Daily Tech Snippet: Tuesday, June 14

• Microsoft, Reasserting Its Muscle, Buys LinkedIn for $26.2 Billion:  Microsoft has made its most ambitious move in years to reassert itself in a technology market it once dominated. The software giant said Monday morning that it would acquire LinkedIn in a $26.2 billion cash deal. The acquisition, by far the largest in Microsoft’s history, unites two companies in different businesses: one a big maker of software tools, the other the largest business-oriented social networking site, with more than 400 million members globally. The deal is Microsoft’s biggest bet yet that the traditional software business is shifting quickly to cloud computing, a model in which customers rent software and other services delivered over the internet. While LinkedIn does not have the household name of Facebook, a much larger and more lucrative social network, it is the most widely used site for people to advertise their professional skills and work history.Though they operate in different businesses, Microsoft and LinkedIn make most of their money by catering to professionals. Executives involved in the deal said that the common thread prompted the acquisition. “They know the interconnections of the business world,” said Brian Blau, an analyst at Gartner, a technology research firm. “That could really benefit Microsoft from a sales standpoint.”

• How generous is Microsoft’s takeover bid? It puts LinkedIn’s enterprise value at 79 times the social network’s earnings before interest, taxes, depreciation and amortization, or Ebitda, for the 12 months that ended on March 31. On the basis of that multiple, the transaction is more expensive than any big internet deal paid with cash, according to data compiled by Bloomberg.Microsoft is paying $220 for each of LinkedIn’s monthly active users. By comparison, when Facebook acquired WhatsApp for $19 billion two years ago, it spent $40 for every user. For LinkedIn, the attractions of the deal are obvious: Its shares fell nearly 42 percent from the beginning of the year through last week, as investors expressed disappointment over a weak earnings forecast for 2016. Finding a buyer with deep pockets dulls the pain of being a publicly traded company.

• One Unspoken Reason Behind the LinkedIn Sale: “Let me explain why.” Jeff Weiner, LinkedIn’s chief executive, wrote a lengthy memorandum to his employees Monday morning, ticking off a list of reasons behind the surprise decision to sell the company to Microsoft for $26.2 billion: Most important, he said, was the heft that Microsoft gives LinkedIn “to control our own destiny.” But there may have been another reason that he left unspoken. That would be the company’s struggling stock price and its reliance — some might say overreliance — on stock-based compensation.On one grim day in early February, LinkedIn’s stock price plummeted more than 40 percent after it forecast weaker-than-expected growth for the year. The share price had hovered at $225 at the beginning of 2016; a month later it briefly got close to $100. The rapid devaluation has posed more than just a problem for investors. LinkedIn’s employees are paid largely in stock, and therein lies the rub: Around the company’s new 26-story skyscraper that opened in downtown San Francisco in March, as well as the corporate headquarters in Mountain View, Calif., there have been persistent whispers about whether LinkedIn could retain its top talent as the marketplace clobbered their incomes.Mr. Weiner — who took over as LinkedIn’s chief in 2009, succeeding Reid Hoffman, the founder — has done a tremendous job in the past years building the company’s business, which is primarily about helping people connect to one another for employment and conduct business-oriented social networking. But despite all the headlines about growth and profits, LinkedIn has been a money-losing operation for the last two years. You wouldn’t know that if you only glanced at LinkedIn’s news releases. That’s because LinkedIn steers investors to focus on what’s known as its adjusted Ebitda, or non-GAAP earnings. The company purposely strips out the cost of stock-based compensation, which has the effect of turning losses into gains. LinkedIn paid out $510 million in stock-based compensation last year; over the last two years, that stock-based compensation represented a whopping 96 percent of operating income, or 16 percent of revenue, according to Mr. Mahaney. Companies like Google, Amazon and Facebook paid out about 15 percent of operating income, or well under 10 percent of revenue.

• Baidu Reduces Revenue Forecast on Ad Restrictions: Baidu, China’s biggest internet search engine, cut its revenue forecast for the second quarter, saying regulatory restrictions cut advertising from drug companies and other health-care groups. Shares declined as much as 8.9 percent in extended trading after the announcement. The company said it projects sales of 18.1 billion yuan ($2.81 billion) to 18.2 billion yuan compared with its previous forecast of 20.1 billion to 20.6 billion yuan. The new regulations on online marketing by health-care companies have caused a reduction or delay in advertising “from a significant portion” of medical customers, Baidu said in a statement Monday. The company said the lower revenue also is a result of the cut in the number of sponsored links, which Baidu announced last month. While these actions will have a negative impact in the short term, Baidu said it expects users to become accustomed to the changes and health-care advertising will eventually recover. Last month, Baidu announced that it will restrict the number of sponsored posts to 30 percent of a results page, and establish a 1 billion yuan fund to fight fraud after the death of Wei Zexi, a 21-year-old computer science student who sought out a controversial treatment advertised among search results.

• Does the LinkedIn sale put Twitter in play? Yes, it does: LinkedIn just gave Twitter investors something they haven’t felt in a long time: Hope. News that LinkedIn sold to Microsoft on Monday for more than $26 billion has pushed Twitter stock up more than 8 percent in early-morning trading. The reason? If Microsoft is willing to break the bank for LinkedIn, maybe there’s a savior out there for Twitter, too! There have long been talks that a big tech company like Google or Facebook or even Microsoft might swoop in for Twitter. Now that feels almost inevitable, especially given that Twitter’s stock is down nearly 60 percent from where it was a year ago when then-CEO Dick Costolo announced he was stepping down. Simply put, that means the LinkedIn acquisition has done more to boost Twitter’s value than CEO Jack Dorsey has. Of course, the stock move is typical investor arbitrage, but if Twitter’s shares stay up, it's a clear signal investors would rather see it in someone else’s hands. Who might save Twitter? It could still be Google, or perhaps a bigger media player like Comcast*. We talk all the time with smart people close to Twitter, and the growing feeling is that Twitter’s best option is to finally sell to someone with deep pockets. With LinkedIn now off the market, those deep pockets may come take a closer look.