What LinkedIn Taught Us About How Deals Work

Sometimes it’s easy to see that many people simply have no clue about the basics of finance. This is no more evident than when looking at various posts people put onto LinkedIn.

You may or may not be on LinkedIn. We are. We’ve been on it a while now. It’s always just kind of there, in the background. But we’ve never really got into it. We’ve never really seen the point of it.

The best way to view LinkedIn is like Facebook for professionals. Now we know that’s incredibly vague, but that’s how LinkedIn pitches itself.

We know of lots of other professionals that are on LinkedIn. Some of them swear by it as a way to make new connections and business relationships. We doubt their enthusiasm is genuine, though.

The way we see it LinkedIn is basically a network for business people to try and pretend how smart they are. This usually includes liking or reposting things other people write or post.

You don’t often get original, thought provoking ideas on there. And sometimes you get out and out drivel. But we guess that’s much like Facebook. And Twitter and…well, every social media platform out there.

Still, it’s all unavoidable we guess. And if used in the right way, maybe we can help to provoke some genuine thought, some original ideas. Or maybe that’s bucking the mainstream trend that these sites seem to perpetuate.

But more often than not we don’t find LinkedIn to have much merit. Oh, it’s probably useful for people looking for a new job. But that’s about it.

Will LinkedIn make you money or make you look the fool?

We know of one business professional that was recently told by their company to be more active on LinkedIn.

When told of this request, we asked them why.

We knew the answer to our own question of course. It was because someone in the social media team was trying to justify their employment by making people ‘engage’ more on LinkedIn. That was our take, at least.

But we also asked our contact, ‘Did they provide you with any data about the ability to convert new LinkedIn contacts to revenue generating activity?

The answer there was no. Not one single effort on LinkedIn had brought in any revenue. The purpose was all about ‘brand recognition’. Now don’t get us wrong, we see the merit in that. And there are social networks that can provide tangible results when it comes to generating revenue from a business sense.

But typically it’s Facebook that allows for that, and YouTube. LinkedIn — well, we wait for someone to prove us wrong.

And more often than not, in our view, people that erroneously post to LinkedIn do more damage to their networks than good. If you think some of the fake news and rubbish posts on Facebook are bad — well think about the same thing, but with a business and finance tilt to it.

It simply makes us cringe at some of the rubbish that gets put out there. But again, while it pops up in our LinkedIn feed, it also finds its way into the mainstream media. Or vice versa. It’s tough to be sure which comes first.

Take for example this gem from our LinkedIn feed today,

Amazon buys Whole Foods for $13B

Amazons market cap goes up $15B

Amazon bought Whole Foods for free and made $2B today

This post or repost or whatever it was, was from an alleged ‘Serial Startup Starter’ with over 11,800 LinkedIn followers. We wonder how many of those were paid. Or are even real people.

Still, we have no doubt that the Amazon/Whole Foods deal is big news. But at least get a few fundamentals right before you go proclaiming to the masses your fundamentally flawed arguments on LinkedIn.

First, it’s not a done deal. It’s an offer that’s likely to be completed. But as it stands, others (like Walmart) may just step up and create a bidding war. Or more likely, just make it more expensive for Amazon to buy.

That said, there’s one more glaring thing wrong here. Amazon didn’t and never will buy Whole Foods for free. That is utter nonsense. And it’s not just on LinkedIn we found this ‘oh-so cool’ way to describe the potential sale.

CNBC’s ‘Trader Talk’ runs the headline, ‘After its stock pop, Amazon will get Whole Foods essentially for free.’

Again, utter tripe.

Here’s how a deal works

Let’s remind everyone of what happens when a company buys another. First off, they make an offer. If said offer is accepted they pay in cash, stock, debt, or maybe some weird bundled equity deal. Regardless, they always pay for a company.

What’s not relevant in this transaction is the stock price of the buyer. The buyer in this case being Amazon. When the deal was announced Amazon’s market cap shot higher — about $15bn higher.

That is what happens when the market likes a deal they think, ‘Hey this might be good and together these two companies are probably worth $15bn more.’

Therefore people are willing to buy Amazon stock higher than the price from the day prior. What this does not mean is that the cost of the sale is somehow negated by market capitalisation.

When a company’s market cap goes up, it has in that instant no tangible impact on the balance sheet, cash flows or profit and loss. It just means that the market prices that company differently. And factors in future cash flows, increases (or decreases) to the balance sheet and future profits (or losses).

It does not make the transaction ‘free’. In fact, in that instant market cap has absolutely nothing to do with the sale — and it certainly does not ‘make’ the company an extra $2bn.

Amazon still has to pay for Whole Foods, whatever their market cap. And consider this: if Amazon’s stock price fell by $13.7bn would people be proclaiming they had to pay double?

Or think about other purchases in the past. Did Facebook get WhatsApp and Instagram for ‘free’? When they bought WhatsApp for US$19bn in 2014 Facebook was trading at around $68 per share. A year later they were trading at US$78 per share. Did they get WhatsApp for free? Did they get Instagram for free when they paid US$1bn in 2012?

Or perhaps when Amazon bought Twitch for $970 million in 2014, they got that for free.

Or is it that in every case they paid real money, and made shrewd business decisions? You can answer that one for yourself.

The point here is don’t be one of those people that picks up on some buzz phrase like this. Understand the mechanics of the deal. Instead of worrying about the number of likes and followers you have, understand how business and finance really work. Before you post on social media…and before you invest.

Regards,
Sam

PS: While on the subject of fake news and mainstream nonsense you’re going to hear a lot of noise about cryptocurrency and bitcoin. Much of it is utter nonsense and uneducated grandstanding. Many so-called ‘pundits’ don’t understand the potential of these networks and their disruptive forces. Many of them didn’t know what bitcoin was a year ago.

You have to be wise and careful when deciding who to listen to when it comes to bitcoin and crypto. The wrong people will lead you down a dark path. You want someone who’s been there for years, seen and experienced firsthand the ups, downs, and all the dangers like scams, fraud and theft. That’s us. We’ve seen and lived through it all. And if you want the best advice on what to do about the opportunity with bitcoin and cryptocurrency, then read this to find out more.


Sam Volkering is an Editor for Money Morning and is small-cap, cryptocurrency and technology expert.

He’s not interested in boring blue chip stocks. He’s after explosive investments; companies whose shares trade for cents on the dollar, cryptocurrencies that can deliver life-changing returns. He looks for the ‘edge of the bell curve’ opportunities that are often shunned by those in the financial services industry.

If you’d like to learn about the specific investments Sam is recommending in either small-cap stocks or cryptocurrencies, take a 30-day trial of his small-cap investment advisory Australian Small-Cap Investigator here, or a 30-day trial of his industry leading cryptocurrency service, Sam Volkering’s Secret Crypto Network here.

But that’s not where Sam’s talents end. Sam specialises in finding new, cutting edge tech and translating that research into how the future will look — and where the opportunities lie. It’s his job to trawl the world to find, analyse, research and recommend investments in the world’s most revolutionary companies.

He recommends the best ones he finds in his premium investment service, Revolutionary Tech Investor. Sam goes to the lengths of the globe and works 24/7 to get these opportunities to you before the mainstream catches on. Click here to take a 30-day no-obligation trial of Revolutionary Tech Investor today.

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