Tell me about it. All these valuations and buyouts starting with a $"B" make me a bit nervous (and truthfully, envious as well).
I don't understand how a market of rational actors can support these kind of numbers. There is just this complete disconnect in my mind with the value these companies provide (people, assets, IP, networking, users, etc.) and the sort of figures getting tossed around.
The Yammer acquisition is consistent with one of Microsoft's core strengths (productivity and collaboration tools for the enterprise). Yammer is also a profitable business that's already really popular in Fortune 500 companies (by their own claims 85% of those companies, out of 200,000 total, which is pretty impressive).
The reason I still have trouble understanding a $B acquisition even in spite of these numbers, is that the tech market is so slippery and fast moving. It is a hotbed of continual disruption and I don't see that stopping any time soon. An investment of > $1B is not paid off overnight, but rather takes a great many many years. Will Yammer still be relevant and providing a competitive advantage for Microsoft ten years from now? Will Microsoft in ten years from now even look anything like the Microsoft we know today?
For example, one world I'm somewhat familiar with is financial planning businesses. In selling a financial planning business, you'll give it a back of the envelope pricing of several multiples (say 2x - 5x) of the amount of revenue the business is generating/expected to generate annually. That way, the buyer says to himself "Well, I make the big investment now and then I reach breaking-even point 3 years down the road" and from there it's all profit. 2x - 5x is a reasonable valuation, because both the buyer/seller can reasonably expect the business fundamentals to remain solid for that period of time. If the seller feels the business may be solid for longer, then he may push for a higher multiple. Conversely, a lower multiple may be justified in the opposite situation.
Back to fundamentals, dollars to donuts, a valuation north of $1B for a company earning a fraction of that in revenue is to me making the statement "We expect the fundamentals of this business to remain solid practically forever" or "We expect this company to accelerate from zero to infinity" - because you would literally need it to in order to recoup your out of pocket *
In the tech industry, that just seems a laughable proposition.
* Of course, there are many other considerations (people value, etc.) but at its core the dollars have to add up or you're just upping the ante on the bubble.
Microsoft understands the value of complementary products, that's why their products are so well integrated with each other. This is why calculating the return on investment from an acquisition like Yammer is difficult, because Yammer may help them sell a few more Exchange/Office licenses.
Also companies like Microsoft have plenty of cash that just sits there in a bank account, like $50 billion or something. Buying Yammer is harmless for them and may yield a better ROI than letting all that cash rot.
I don't understand how a market of rational actors can support these kind of numbers. There is just this complete disconnect in my mind with the value these companies provide (people, assets, IP, networking, users, etc.) and the sort of figures getting tossed around.