Kurnos On SMID-Cap Internet Implications From Microsoft, LinkedIn Deal

Microsoft Corporation (NASDAQ: MSFT) agreed to buy LinkedIn Corp (NYSE: LNKD) for $26.2 billion, or $196 per share. Dan Kurnos of Benchmark said Microsoft paid 25x 2016 EV/EBITDA, or 20x using 2017 estimates, in line with the expected revenue and EBITDA growth rates of 20–25 percent for the next few years.

Kurnos also highlighted the impact of the deal on various SMID Internet names.

"While Twitter Inc (NYSE: TWTR) got most of the attention as the next potential target, Monster Worldwide, Inc. (NYSE: MWW) was down modestly before turning positive." The analyst continued, "[W]hile CareerBuilder seems to be getting paid no attention, owned roughly 75–25 by Tegna Inc (NYSE: TGNA) and Tribune Media Co (NYSE: TRCO)."

"We think the announcement could be a mixed bag for Tegna, helping prop up their sum-of-the-parts valuation, but also possibly raising the asking price for Tribune's remaining stake," Kurnos wrote in a note.

Kurnos noted that Tribune had somewhat recently announced any and all of its assets might be for sale, and given Tegna's struggles, consolidating CareerBuilder at a reasonable price seemed a logical course of action.

"Given CareerBuilder's shift to a SAS model, the valuation support from the LNKD acquisition and Microsoft's questionable history of continuing to operate acquired growth assets, we would still view this event as a modest net positive for Tegna, although TRCO may be the more immediate beneficiary depending on if they progress with a sale plan," Kurnos added.

Shares of Microsoft were down 2.42 percent to $50.24, while LinkedIn jumped more than 47 percent to $192.25 and Twitter surged more than 6 percent to $14.83. Shares of Tegna rose 0.27 percent to $21.97, while Tribune dipped 0.32 percent to $37.28.