I will say right off the bat that Microsoft’s stock is now one of my favorite short-sell candidates.  This is the 2000 tech bubble on steroids.  MSFT itself is extremely overvalued given that its revenues are down over 7% on a trailing twelve month basis compared to its FY 2015 ended June 30th.   Its net income is down 16% on the same comparison basis.   MSFT itself trades at a 38x trailing p/e with declining revenues and income.  It trades at 4.7x sales and 5.4x book value.

It’s been issuing debt like the U.S. Government in order to buy back shares, with its debt load increasing nearly 50%  since September, from $27 billion to over $40 billion.  Since June 2013, MSFT’s debt load is up 333% (from $12 billion).

MSFT’s valuation is in and of itself is insane given it’s debt-addled balance sheet and deteriorating business model.  Microsoft Windows 8 was a total abortion and Windows 10 is not much better.  Anyone with two brain cells to rub together uses the bare bones Windows 7 and the freeware Linux-based Microsoft surrogate software, which can can be downloaded for  free (or a gratis donation) and is superior to MSFT’s crap (see OpenOffice.org, for instance).

Now Microsoft has decided to layer nuclear waste on top of its own toxicity by acquiring Linked-In for over $26 billion.   This is a tragic, if not catastrophic, use of shareholder cash. Here’s LNKD’s net income history:  It reported GAAP net income going from $11.9 million in 2011 to $26.7 million in 2013.  Then it decided to use the Silicon Valley private equity unicorn stock valuation model and spend as much money on “R&D” as possible in order to generate losses.  And it has generated massive losses:  in 2014 it reported a $15.7 million loss. This ballooned to a $164 million loss in its FY 2015.  On a TTM basis, LNKD’s net income has plunged to nearly a $170 million loss.

And MSFT is paying for what?  This is from MSFT’s press release announcing the tragedy:

• 19 percent growth year over year (YOY) to more than 433 million members worldwide
• 9 percent growth YOY to more than 105 million unique visiting members per month
• 49 percent growth YOY to 60 percent mobile usage
• 34 percent growth YOY to more than 45 billion quarterly member page views
• 101 percent growth YOY to more than 7 million active job listings   (LINK)

Anyone see ANY mention of those attributes generating any revenue, cash flow or operating income?   Remember when Maria Bartiromo and Joe Kernan used to crow about “clicks and eyeballs” to justify multi-billion market caps for internet businesses with nary a business model?  That’s what this acquisition is all over again.

MSFT on the surface is paying:  5.4x sales, 4x book value, 4.8x enterprise value (market cap + debt) AND 58x enterprise value to EBITDA.    Wait, anyone notice there’s no implied p/e ratio?  That’s because there’s no “e.”  But of course Wall Street has stuck a hockey stick net income forecast for FY 2017, so the implied “forward” p/e is 45x.

Microsoft’s acquisition of LNKD is about as idiotic as it would be to try and convince someone that the sun rises in the west and sets in east.   If anything, this deal is emblematic of an American systemic Ponzi scheme that has gone “off the rails.”

Linked-In is nothing more than a glorified jobs networking bulletin board.  Sure, as the system continues to unravel and more “business services” people lose their jobs, there might be a big jump in “clicks and eyeballs” on Linked-In.  But this will be out of desperation trying to find anyone on the Linked-In board who might offer a ray of hope for employment.  But no one will spend their unemployment check on LNKD’s idiotic premium services.   That will be money much better spent on whiskey and weed, which is exactly what MSFT’s upper management and board of directors must be ingesting to have come up with this idea.   MSFT is my lowest risk short-sell idea of the year.

The best part is that Jim Cramer is pounding the table hard with bullish commentary about this deal.   This makes the idea of shorting MSFT a slam-dunk.  It reminds me of his bullish call on Bear Stearns before Bear collapsed.

If you like this analysis, you might benefit from my Short Seller’s Journal.  Every week is present what I believe to be somewhat unique market insight, a minimum of two short-sell ideas, recommendations for using options and capital/trade management strategies.   My picks greatly outperformed the S&P 500 when the market dropped from early January to mid-February.  You can access the SSJ using this link:   Short Seller’s Journal.