Wall St. Speaks Out on LinkedIn Acquisition of Lynda.com - BMO, Dan Salmon / Jeffrey Silber

Moving Into the Online Education/Training Space

LinkedIn will acquire Lynda.com, an online learning company that helps its users improve job skills through online video tutorials. The deal is valued at $1.5B (52% in cash, 48% in stock) and is expected to close in late 2Q15. The price implies a ~10x multiple of Lynda's $150 mm of 2014 revenue, which is growing at a mid-20% range, with 70% gross margins and an adjusted EBITDA margin in the 5-10% range. Lynda derives about two-thirds of its revenue from individual subscriptions, one-third from enterprise subscriptions. Management cited a total addressable market of $30B focused on content and instruction in the online environment.

Impact & Analysis

Positive on the long-term opportunity in spite of rich multiple. Online learning represents an obvious path for LinkedIn's product roadmap and helps fill out the company's focus on creating a more complete "economic graph." Lynda is one of the larger companies in a fragmented space and we like its focus on creating original education and training content, as opposed to aggregating. Valuation is steep versus a median revenue acquisition multiple of 2.4x within the education industry in 2014, but LinkedIn expects a number of variables to justify this including the high-quality library of content, the high-quality team creating more of it and the relatively seamless integration of Lynda's subscription model with LinkedIn's Premium Subscriptions segment. Although below LinkedIn's current levels, we believe Lynda's mid-20% revenue growth rate and 5-10% EBITDA margins will benefit from the professional social network's global scale.

Valuation & Recommendation

Our revenue and EBITDA estimates increase $232 mm and $19 mm, respectively, in 2016. We are also rolling out 2016 quarterly and 2017 full-year estimates.

Daniel Salmon and Jeffrey Silber are Equity Research Analysts at BMO Capital Markets. Research trends at the intersection of entertainment, advertising, data and technology. Dan can be reached at dan.salmon@bmo.com and Jeff can be reached at jeff.silber@bmo.com. Click to read more on Dan and the BMO Company disclosure.

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