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LinkedIn Co-Founder Reid Hoffman Calls Microsoft Deal a ‘Re-Founding Moment’

Microsoft Corp.’s $26.2 billion acquisition of LinkedIn Corp. gives new life to a social-networking pioneer that has built a huge user base of mostly white-collar professionals but has struggled to maintain its prominence in a competitive and fast-changing sector.

Since co-founder and Executive Chairman Reid Hoffman initiated LinkedIn 13 years ago by inviting 350 of his contacts to join, the company has grown to claim 433 million members, including 105 million active monthly users.

It has become a central place online for professionals to network and learn about job opportunities, making it enormously valuable for executive recruiters and giving it a trove of data that few other companies have. “LinkedIn’s growing database of more than 433 million ‘resumes’ is unlikely to ever be replicated by another company,” Cowen & Co analyst Gregg Moskowitz said in a research note on Monday.

But users face ever greater demands on their online time from social-media rivals such as  Facebook Inc., which is also building products for professionals such as Facebook at Work. Recruiters still consider LinkedIn an essential tool, but some say its value has diminished recently, with potential recruits using the platform less often or replying infrequently to messages there.

A few years ago, “LinkedIn was a great way to reach talent that we knew had live profiles, and that we could engage with,” said Richard Eib, chief executive at Xceli Global, which specializes in hiring technology professionals with expertise. Now, with so many recruiters on LinkedIn, response rates are falling, he said. “We don’t see the return on investment we used to get.”

About two-thirds of LinkedIn’s $3 billion in revenue comes from its talent-solutions division, which helps corporate recruiters identify job candidates. The company also generates cash from premium subscriptions and advertising.

Xceli spends $30,000 to $40,000 annually on LinkedIn, and Mr. Eib says he gets high-quality leads there, but the firm now relies more on Entelo Inc., one of a new generation of recruiting tools that aggregates information from across public websites and social media to automatically create profiles for potential hires. His No. 3 source is Twitter Inc.

Mr. Eib said the merger with Microsoft may “rekindle our interest” in LinkedIn, particularly if recruiters are given new ways to connect with potential candidates. Without clear advances, Mr. Eib said he likely will scale back his spending on LinkedIn.

“Before LinkedIn, the name of the game was finding people,” said Boris Epstein, co-founder of Bay Area-based Binc Search, which recruits for technology firms.

“LinkedIn made it very easy to find people. Now the name of the game is to engage people, and that is all about timing, interests, and other things LinkedIn doesn’t add a lot of value to.”

LinkedIn’s challenges earlier this year hammered its share price, which fell by more than half after it delivered a less-robust-than-expected earnings outlook.

The $26.2 billion in cash that Microsoft is paying, at a 50% premium to Friday’s closing price, gets LinkedIn’s value back to slightly above where it was before that plunge.

And according to LinkedIn Chief Executive Jeff Weiner, it places the professional network among other giants of the tech industry.

Mr. Hoffman, who owned 11% of LinkedIn’s shares and held 53% of its voting power as of last year, described the deal as “a re-founding moment for LinkedIn.”

He said: “I see incredible opportunity for our members and customers and look forward to supporting this new and combined business.”LinkedIn said Mr. Hoffman, a former Apple Inc. and PayPal executive who also is a partner at venture-capital firm Greylock Partners, would continue to be involved informally in the Microsoft-owned LinkedIn.

LinkedIn faces other difficulties. Its revenue growth has been slowing, which is what spooked investors.

Earlier this year, the company projected revenue in 2016 would grow roughly 22%—down from 35% in 2015. It later boosted its outlook, but revenue growth still looks poised to fall far short of 2015.

LinkedIn also has struggled to adapt to the mobile revolution, a change that has greatly benefited Facebook—though an overhaul of its mobile app last year has shown signs of gaining traction.

LinkedIn is installed in fewer phones than heavily used apps such as Facebook, Snapchat, Twitter Inc. and Instagram. But unlike those four, users spent more time on the LinkedIn app in the first quarter of 2016 compared with the year-ago period, according to digital data firm SimilarWeb.

LinkedIn is the 28th most-visited website in the world and the 14th most popular in the U.S., says Similar Web.About one-third of LinkedIn’s traffic comes from the U.S. where users spend an average of five minutes and 16 seconds a day in the app.

Reid Hoffman, co-founder and executive chairman of LinkedIn, owned 11% of the company’s shares and held 53% of its voting power as of last year. PHOTO: JAN HAAS/ZUMA PRESS

Several analysts downgraded the stock earlier this year. But last week, RBC Capital Markets analyst Mark Mahaney upgraded LinkedIn, citing his survey of 290 U.S. recruiters, which found 45% of them would spend more on LinkedIn over the next 12 months and 48% would maintain their spending.