Following weeks of speculation and rumors, Microsoft announced its acquisition of GitHub—the world’s leading software development platform, code repository and code-sharing and collaboration service—on June 4th for $7.5 billion in Microsoft stock. The announced purchase price implies GitHub has been acquired for ~30x annual recurring revenue, marking the highest reported revenue multiple Microsoft has ever paid. For reference, Microsoft acquired LinkedIn for $26.2 billion in 2016 at 7.2x revenue, an acquisition that was, at the time, considered one of the loftiest tech deals ever made.
Founded in 2008 in San Francisco, GitHub raised $250 million of growth capital and was valued at ~$2 billion in 2015. As of March 2018, there were 28 million developers in the GitHub community and 85 million code repositories, making it one of the largest hosts of source code globally.
GitHub’s main source of revenue comes from paid accounts, which allow users to access private code repositories and other various features that enterprises need, with pricing ranging from $7 to $21 per user per month. GitHub’s platform is free for those building public and open source projects. While Microsoft has had a rocky relationship with developers and open source platforms in the past under previous CEO Steve Ballmer, this acquisition may very well solidify its renewed stance and company direction.
Clearly, the massive multiple paid by Microsoft must be looked at through a strategic lens as opposed to a financial one. GitHub will play an integral role in Microsoft’s future goal of being the ‘go-to’ platform for all developers’ needs. Microsoft is currently the top contributor to GitHub, with more than 1,000 employees contributing code, and its current Visual Studio product uses the Git protocol.
Microsoft is acquiring GitHub to connect with the vast network of developers who use its code repository as an essential tool every day. Eventually, these developers will be directed into the Microsoft ecosystem, where it can continue to promote its products and services. Individual developers use GitHub as a collaborative space for sharing ideas, and 1.8 million companies use it to share code and track the progress of current projects.
In a recent blog, CEO Satya Nadella highlighted enterprise usage as one of the major opportunities with the acquisition. Microsoft plans to increase enterprise developers’ use of GitHub, give them access to Microsoft’s global cloud infrastructure and services and bring Microsoft developer tools and services to newer and bigger audiences. GitHub will maintain its “developer-first” ethos and will continue to operate independently, providing an open platform for all developers in all industries.