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On this episode of First Ring Daily, we finally have a date for RS4, Microsoft is still making lots of money, and Paul is on the road.
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<p>Brad,</p><p>"Ammortization of Intangibles" is when Microsoft charges for the non-asset part of what they paid for LinkedIn. Basically, the amount they "overpaid" relative to hard asset value (because the market value paid was higher than accounting asset values). By accounting rules they have to set this aside and charge themselves for it like depreciation, over some period of I think 15 years. </p><p>So the difference is when Microsoft accounts for this charge ("GAAP" accounting, which is required standard), LinkedIn loses money, but when they exclude this charge ("pro forma" accounting go give investors an alternate picture that is also relevant) LinkedIn is making money, slightly above $100MM each of the last two quarters. In short if you say, let's forget what we paid for it, what does LinkedIn do today, answer is it makes between $100 & $150MM each quarter. So, to both yous question as to how long it will take to pay back $26B, the static answer today is like 52 years (yikes). </p><p>But of course this probably isn't wholly correct, part of the idea is that LinkedIn's profits will grow rapidly, and when you take a closer look at the profits over several quarters, you see that has indeed been the case. The other part of the idea are synergies, and the allure of the social networking model, which may somehow be beneficial in all sorts of ways, if you take LinkedIn's 500 million profiles. Of course not all social network promises may pan out, we will see how LinkedIn does on that front. </p><p>But companies that have been highly valued without the profitability to back it up in the past include Amazon, Facebook, Tesla etc, so it's not like there has not been a precedent for this (in fact Amazon still does not have the actual profitability to back up its value, AMZN's Price to Earnings right now is 243, that is although it will take Microsoft 52 years to get their money back from LinkedIn, a person that buys Amazon stock today has to wait 243 years to get their money back). So, put it in perspective when you are questioning Microsoft's buying LinkedIn and in the next breath you turn to Amazon with praises of their business. Also you can check values for companies like Twitter, Snap etc (i.e. comparables to LinkedIn because, social networks), and you will see they are in range.</p><p>BTW, you guys really ought to bring in finance experts as interviewees if you want to discuss finance, or similarly for other metrics outside your expertise, which is tech product & services blogging (I am probably a broken drum on this), but understanding what you are saying matters when you say you are informing the public, and no, knowing high school math and having some gumption as you may think, does not cut it in today's world where all things have their specific definitions, everybody knows just a little slice of the world. Alternatively, you can truly brush up on it before acting as a source. </p><p>But hey, I am doing the favor of putting this comment where only Thurrott employees will read it :-)</p><p><br></p>