Why Did Microsoft’s Stock Fall after LinkedIn Offer?

So far in this series, we’ve explored various angles to the Microsoft-LinkedIn deal. Though markets construed Microsoft’s (MSFT) $26.2 billion offer for LinkedIn (LNKD) as a positive for LinkedIn, it wasn’t the same for Microsoft. After Microsoft’s announcement, LinkedIn’s stock rose 47% to $192.21 while Microsoft’s stock fell 2.6% to $50.14 on June 13, 2016.

Microsoft has made several acquisitions in the past. However, if we look at its history, it hasn’t had much success in terms of the synergies it had hoped for. In 2007, it acquired marketing firm aQuantive for $6 billion, which led to a $6.2 billion write-down in 2012. Nokia’s mobile phone division met the same fate. Microsoft bought it in 2014 for approximately $6.1 billion, which led to write-downs of approximately $8.5 billion in 2015 and 2016. In addition, Skype, which Microsoft bought for $8.5 billion in 2011, continues to be a concern, as it’s facing stiff competition from Facebook (FB) Messenger and WhatsApp.

Because many of Microsoft’s acquisitions haven’t been as successful as the company had hoped for, markets were skeptical when Microsoft announced its largest-ever acquisition. Thus, Microsoft’s stock fell after the announcement.

Investors who wish to gain exposure to Microsoft could consider investing in the PowerShares QQQ Trust, Series 1 ETF (QQQ) and the iShares Russell 1000 Value ETF (IWD). QQQ and IWD have exposures of 28.4% and 3.4% to application software, respectively, and invest ~8.4% and 2.0% of their holdings in Microsoft.