As we all know, Microsoft and LinkedIn announced a deal today. I've analyzed LinkedIn's financials a while ago and had some concerns regarding their margins. When the deal is announced, it's time to re-visit the financial statements and check out what Microsoft just bought and how they can benefit from it. On April 29 LinkedIn reported its Q1 FY2016 results: top-line sales grew up almost 35%, cash increased by 39% - everything seemed to be very attractive. Taking a deeper look we see some issues though. Loss from operations is $66M, which is almost 4 times higher than it was one year before. As we can see from the table above, the biggest contribution was made by the expenses in Product Development and Depreciation and Amortization. Other lines were intact with net revenue growth. The company described this increase "as a result of our focus on developing new features and products that create value for our members.". From the user experience - I don't see a huge difference between LinkedIn 1 year ago and LinkedIn now. There is no information regarding LinkedIn Pulse or LinkedIn articles, how many people are using it. All these features are not working as the management planned them to perform. Product development expenses increased by 44%, while the headcount grew up 32%: From one point of view, LinkedIn's headcount growth is in line with top-line sales growth. From another point of view, we may see two outputs: 1) tech specialists are too overvalued, or 2) management cannot handle such significant headcount growth. Internal policies and in-house career development should comply with company's performance. Here we see that the company increased average headcount expenses from $85K to $92K representing 8% growth. According to PayScale, average nationwide software engineer salary is around $75k: But if we take a look at Glassdoor data for Software Engineer Salaries in California, we get the following numbers: As you can see from the screen shot and data above - LinkedIn is more or less in line with average salaries on market. But I assume that the company allocate certain support headcount to Product Development. Hence we see here, that LinkedIn's salaries year ago could be lower than the actual ones. Second point here is depreciation and amortization. The company explained this increase as "the result of amortization of customer relationships and content from our acquisition of Lynda.com in 2015" and "the result of the build out of our data centers, increases in leasehold improvements as we lease additional facilities to accommodate our headcount growth, and increases in capitalized website and internal-use software". I have a feeling, that LinkedIn is hiring more people, improving their data centers and internal software as they want to introduce another LinkedIn.com website. $35.5M increase was attributable to Lynda.com, $32.8M to data centers. As for Lynda, LinkedIn refers this business to Talent Solutions. According to the same 10Q report, LinkedIn increase its revenue from Talent Solutions by 42% or from $241M to $342M. According to wikipedia, Lynda's revenue before the acquisition was around $100M a year. I assume that they could increase it significantly while being a part of LinkedIn, hence the increased amortization and depreciation expenses sound reasonable for me. Absolutely unreasonable is almost $33M increase in data centers amortization. Perhaps the company was already working on the acquisition. If we analyze the unit-economics of LinkedIn, we get an interesting result. To understand the business efficiency, I always check how much money the company is making per one user. According to the most recent data, LinkdedIn has around 432M registered users which is 19% more than they had one year ago. If we calculate the revenue per user, cost of sales and other expenses per user we will get that the average return on one registered user is around 15.5c per quarter. And what is even more interesting, the number is quite stable. Moreover, if we re-calculate it with active members, we will see that the company increase an average margin per active member from 59c to 64c representing 8% growth. It looks like unit economics is working good for LinkedIn. Increased data centers amortization shows that the company was already working on the acquisition. Microsoft will most likely provide LinkedIn with their data centers and tech facilities. LinkedIn just lowered the price of data-centers in its balance sheet to increase the value of the business itself. That's purely accounting questions. LinekdIn's business is doing great. I bought some ATM calls, made my money on this. Could make even more if I bought some shares, but LNKD was too risky for me a few weeks ago.