LinkedIn has added a touch of mission creep to its resume. The social network for job-seekers is buying an online learning company, lynda.com, for $1.5 billion in cash and stock. LinkedIn claims both companies share the same ambition: "Help professionals be better at what they do." That fuzzy goal could encourage the $31 billion group to take on jobs for which it's not suited.
LinkedIn is steadily attracting more users, especially outside its home market of the United States, getting them to look at more pages, and signing more people up for premium subscriptions. That's luring more employers to the site. The result is a company that's dominant in its niche, and growing revenue at more than 40 per cent per annum.
The firm and its investors both believe LinkedIn's future is bright. That's why the company invests heavily to add new features, attract new members and expand into new countries. So, it runs more or less at breakeven. Yet, investors assume it will eventually generate a lot of black ink: LinkedIn is valued at more than 70 times estimated 2015 earnings.
The acquisition is LinkedIn's largest, and it doesn't come cheap. The company is paying 10 times 2014 revenue for a target that is growing about 25 per cent annually. LinkedIn can easily afford it, as it has more than $3 billion of cash on its balance sheet.
Yet, it looks like an expansion of the company's ambitions. LinkedIn has essentially been a big networking site, allowing job-seekers to showcase their skills and match these with companies in need. Helping people learn new tricks is a related, but distinct, endeavor for the social network.
The danger is that LinkedIn is drawn into areas further afield. In a call discussing the deal, Chief Executive Jeff Weiner talked about lynda.com's strength on university campuses, and his excitement about building on this. Education might be a huge opportunity, but it's not known as a fount of corporate profitability. Keeping the focus on its role as the social network for the aspiring workforce will keep LinkedIn on the right career path.
