Microsoft (NASDAQ:MSFT) has bought LinkedIn (NYSE:LNKD) , and whether you have shareholder’s remorse or not, there’s no turning back. Some saw the 49% premium on LNKD’s Friday share price as expensive, while others saw the buyout as a potential opportunity for Microsoft to build on going forward.
Whichever position you take, one can’t help but wonder about what other tech companies Microsoft could have bought for $26 billion. Some of the notable tech companies which make the qualifying list below might surprise you. They may even have you wondering why Microsoft didn’t buy them instead of LinkedIn. It’s worth noting, however, that if any of the following companies were to be acquired, then they would probably be bought out at a price tag that exceeds $26 billion. After Microsoft’s aggressive purchase of LinkedIn, folks can’t help but wonder about whom the next acquisition target will be as MSFT moves forward.
Applied Materials Technologies Inc- (NASDAQ:AMAT)
Applied Materials is a leader in materials engineering solutions for computer chips and advanced displays. In addition to providing these services, the company also has a segment dedicated to energy and environmental solutions. With its equipment, services, and software, Applied Materials’ portfolio has exposure to the solar, semiconductor, and advanced display industries.
This Silicon Valley company generates close to $10 billion in revenue, and the company has significantly improved its bottom line over the last three years. The stock is currently a Zacks Rank #2 (Buy), and AMAT is coming off of a fresh earning beat which has propelled its stock 18% higher. The company’s earnings and guidance came in well above expectations, which is a very promising sign for the company. In spite of the large share price increase, AMAT’s stock is still cheaper than LinkedIn’s acquisition price tag. Applied Materials’ market cap stands at $25.54 billion.
APPLD MATLS INC EPS Diluted (Quarterly)
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HP Inc- (NYSE:HPQ)
The Hewlett-Packard Company split into two corporations in November of 2015. The move was made in an attempt to streamline and simplify the corporation’s business processes. HPQ is focused on selling printers and personal computers. The company is the larger of the two split companies, and it has a market cap of $22.47 billion.
Hewlett-Packard generated sales of $103 billion in 2015. HP Inc. won’t generate this level of revenues because of the split, but it still has a lot to be desired in a potential acquisition deal. The company has intangible assets which could end up being very valuable for a computer giant like Microsoft. HPQ is a Zacks Rank #3 (Hold), and it has an “A” for Value in our Style Scores. Acquisition targets are typically assessed based on how attractive their EV/EBITDA ratio is. A lower amount signifies a cheaper deal. HP’s EV/EBITDA is 2.56, which is way ahead of the industry’s average EV/EBITDA of 2.56.
NetEase Inc- (NASDAQ:NTES)
NetEase Inc. is a China-based internet company focused on providing services with developing applications, online services, and other technologies for the internet in China. It should be noted that NetEase also creates in-house developed games and licensed titles. The company has a wide reach online, providing advertising, email, micro-blogging services, and more. NetEase has a market cap that is just under $22 billion.
NTES is a Zacks Rank #1 (Strong Buy), and it grew revenues by 86.4% between 2014 and 2015. The company continues to grow quickly, and its share price has more than doubled since 2014. NetEase is very profitable, and its net margin of 29% is proof of this. It is very promising to see that sales are projected to grow by 43.73% this year. The company has a solid balance sheet, with low debt and high amounts of equity. It is nice to see that the company is sitting on over $4.5 billion in cash. This stockpile should help the company in executing more growth strategies as it moves forward.
Nvidia Corporation- (NASDAQ:NVDA)
Nvidia is a technology company which engages in designing graphics processing units (GPUs), as well as system on a chip units (SOCs) for the computing and transportation market. The company’s segments include gaming, professional visualization, data centers, and auto. Nvidia is a worldwide leader in visual computing, and their products are widely used across many industries. From artificial intelligence, to virtual reality, or even self-driving cars, the company has technologies to help in advancing these fields.
Nvidia is a Zacks Rank #3 (Hold), and its stock has a weighted average VGM score of “A” for metrics that cover growth, value, and momentum. The company’s earnings are projected to grow by 44% this year. This is a significant amount of earnings growth expected given the fact that sales are projected to grow by just 11% this year. Nvidia’s valuations are a bit lofty, but that may be warranted, given the fact that there are still higher long term growth expectations for the company.
Bottom Line
Some of these companies look as though they have some substance to offer Microsoft with regards to generating earnings. LinkedIn has never been a stellar candidate on the income front, which is a key feature distinguishing it from any of the companies above. That being said, the acquisition was done for a strategic purpose.
Microsoft wants to access data on LinkedIn’s plus 400 million professional profiles, and use that data to merge it with the professional cloud. It also wants to use that data to figure out how to effectively market products to those users. This purchase was Microsoft’s largest acquisition to date. MSFT still has plenty of cash to use for future company buyouts. Which company will be next?
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