LinkedIn Co-Founder Reid Hoffman Calls Microsoft Deal a 'Re-Founding Moment'

By Deepa Seetharaman

For LinkedIn Corp. and its co-founder and Executive Chairman Reid Hoffman, the sale to Microsoft Corp. announced Monday puts a positive cap on what's been a rocky stretch.

Since Mr. Hoffman launched the professional social-network from his living room in 2003, it has grown to have 105 million monthly users and $3 billion in annual revenue. But it also has struggled to harness its rich and powerful trove of data effectively, and its share price plunged more than half earlier this year after it delivered a less-robust-than-expected earnings outlook.

The $26.2 billion in cash that Microsoft is paying for LinkedIn, at a 50% premium to Friday's closing price, gets LinkedIn's value back to slightly above where it was before that plunge. And according to LinkedIn Chief Executive Jeff Weiner, it places the professional network among other giants of the tech industry.

Mr. Hoffman, who owned 11% of LinkedIn's shares and held 53% of its voting power as of last year, said Monday he backs the deal. "Today is a re-founding moment for LinkedIn," he said. "I see incredible opportunity for our members and customers and look forward to supporting this new and combined business." LinkedIn said Mr. Hoffman would continue to be involved informally in the Microsoft-owned LinkedIn.

Mr. Hoffman, a former Apple Inc. and PayPal executive who also is a partner at venture-capital firm Greylock Partners, started 13 years ago inviting 350 of his contacts to join LinkedIn and create their own profiles. By the end of the month, the service had 4,500 members.

In a 2009 interview with The Wall Street Journal, Mr. Hoffman said he used the money from PayPal to create LinkedIn. He already invested in social networking companies like Facebook Inc.

"People will be discovering that the internet helps their career," he said at the time.

LinkedIn shuffled its executive ranks a few times, eventually hiring Mr. Weiner first as interim president in December 2008 and later as CEO. It went public in 2011, when closing its first day of trading with a market value of $9.1 billion. The offering was controversial, with many observers saying investors were overly exuberant about a company that generated a profit of just $15.4 million the previous year.

Proponents lauded LinkedIn's fast-growing subscriber base and diversified revenue streams -- a rarity among web companies, many of which rely almost entirely on advertising to power revenue. About two-thirds of LinkedIn's revenue comes from its talent-solutions division, which helps corporate recruiters identify job candidates. It also generates cash from premium subscriptions and advertising.

It also is one of few U.S. internet companies with a presence in China, where LinkedIn has launched Chitu, a networking app for Chinese professionals. Executives also have said they would like to develop products tailored to the Indian market, LinkedIn's second-largest market outside the U.S.

But LinkedIn struggled to adapt to the mobile revolution, one that has greatly benefited Facebook. Last year, it overhauled its mobile app -- and there are signs that it's gaining traction.

LinkedIn is installed in fewer phones than heavily used apps like Facebook, Snapchat, Twitter Inc. and Instagram, but unlike those four, users spent more time on the LinkedIn app in the first quarter of 2016 compared to the year-ago period, according to digital data firm SimilarWeb.

LinkedIn is the 28th most-visited website in the world and the 14th most popular in the U.S., says SimilarWeb. About one-third of LinkedIn's traffic comes from the U.S. where users spend an average of five minutes and 16 seconds a day in the app.

Still, its ad growth has been slowing, which is what spooked investors. Earlier this year, the company projected revenue in 2016 would grow roughly 22% -- down from 35% in 2015. It later boosted its outlook, but revenue growth still looks poised to fall far short of 2015.

Executives also backtracked on its advertising strategy, deciding to double-down on native advertising and shelving an ad product that it launched less than a year prior. LinkedIn executives also said they faced economic pressure overseas and a slowdown in its higher-margin online sales business.

Several analysts downgraded the stock earlier this year. But last week, RBC Capital Markets analyst Mark Mahaney upgraded LinkedIn, citing his survey of 290 U.S. recruiters, which found 45% of them would spend more on LinkedIn over the next 12 months and 48% would maintain their spending.

Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com

(END) Dow Jones Newswires

June 13, 2016 16:44 ET (20:44 GMT)

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