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What the LinkedIn Deal Reveals About Bubbles

Worry about corporate bonds, not tech stocks.
Not always easy to recognize.

Not always easy to recognize.

Photographer: Matthew Lewis/Getty Images

Microsoft’s move to purchase LinkedIn for $26.2 billion -- the largest company-for-company acquisition in the technology industry since Hewlett-Packard’s 2002 purchase of Compaq -- is bringing out the predictable talk of irrational exuberance. But if the deal does indicate a bubble, it’s not necessarily in tech or in stocks.

First, the combination actually makes sense on many levels. The companies both cater to older, corporate users, and have similar missions, with Microsoft seeking “to enable people and businesses throughout the world to realize their full potential,” and LinkedIn “to connect the world’s professionals to make them more productive and successful.” Putting the two together could allow for some significant cost savings: Microsoft could economize a lot simply by imposing some discipline on LinkedIn’s profligate use of stock-based compensation, which the social-networking company has forecast at about $580 million in 2016, on revenues of between $3.65 billion and $3.7 billion.