Linkedin Spain declares losses for the first time after sale to Microsoft

Silvia Castro Betancourt

February 6, 2018

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Shutterstock 483238606There are red numbers for the first time in Linkedin’s (short) history in Spain. The Spanish subsidiary of the professional social network ended with losses in 2016, in which it closed its sale to Microsoft for 26,000 million dollars. The company, which has operated in Spain since 2011, has increased its personnel expenses after increasing its local staff by 75%. Despite having paid just 200,000 euros of taxes in these years, the company is still saved from the clutches of the tax agency.

Revenue almost doubled to 6.2 million euros during the year, compared to 3.2 million a year earlier. This volume of business has nothing to do with the currency, since only the commissions were charged to its Irish parent company, which is the one that charges for the different services (digital advertising, recruitment solutions for companies and premium subscriptions).

Despite these good figures in the activity – more commissions implies a greater volume of business – the company could not avoid the losses. In total, the loss added up to 230,000 euros, which contrast with the benefits that have been accumulating during its history in Spain.

Personnel expenditures, fired

The fundamental reason for these red numbers must be found in the personnel section. The Spanish subsidiary has increased its staff by 75% to 28 employees on average, according to the report. As a result, spending on payroll (and also on payments in shares) increased by almost 60% to 1.6 million euros.

The most striking fact is found in the chapter on ‘Other social expenses’. This heading usually includes benefits such as medical insurance, scholarships or different grants. In one year it has gone from 682,000 to 1.7 million euros. The reason? There is no explanation whatsoever, although everything points to its relationship with the sale to Microsoft and the incorporation of some type of benefit already existing in the buyer.

Tax structure very similar to Google

The fiscal structure of Linkedin’s worth is very similar to that of other multinationals in the sector such as its new owner, Microsoft, or Google. The Spanish subsidiary acts as a commissioner of an Irish parent company, which controls the intellectual property of its services – mainly advertising and professional recruitment charged to companies – that are billed there.

Therefore, Linkedin Spain SL signed a contract with the Irish company to provide services at the start of its activity in 2011. Today it is still valid. The subsidiary charges a commission “for the support to sales and marketing that is calculated as attributable costs more than 5%”.

With this structure, the company has kept the expenses in corporate taxes very low. Specifically, in seven years they have only paid 208,000 euros. In spite of everything, it still remains immune before the treasury. It has not carried out any inspection during this time, unless otherwise reflected in an annual report.

Was it a good buy?

Beyond the results in Spain, it has been just one year since Microsoft took out the checkbook to be with Linkedin in one of the largest corporate operations in recent years. After paying 26,000 million dollars. During this time he has not intervened excessively on a day-to-day basis. The brand has remained independent and the business figures achieved under its umbrella are not negligible. Between June and December of 2017, it added 2,460 million dollars of business.

It remains to see evolution. As managers explained in the presentation of results globally, has accumulated five consecutive quarters with growth above 20%. “It is a more strategic asset than we think,” the company’s financial manager, Amy Hood, concluded last week.

 

The above article was written and published in Spanish and has been translated into English. Click here to read the original article.

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Simon Baker is the Founder and Executive Chairman of Online Marketplaces and Property Portal Watch. Involved with property portals for 15 years, he’s a well-recognized expert and industry consultant.
As former CEO/MD of the REA Group for 8 years, Simon led the group to its current market-leading position. When he joined REA Group in 2001, it had $4m in revenues, $6m in losses and an $8m market cap.
By 2008, the company presided over $155m in revenues, $35m in EBITDA and enjoyed a peak market cap of $1b. Simon is currently Chairman of the Mitula Group and Real Estate Investar and a serial portal founder and, investor.