Notes

Microsoft's Desire to Purchase TikTok

Many analysts have described the acquisition as a "coup" for Microsoft and a chance to buy one of the world's fastest-growing social media platforms at a time when TikTok may be looking to strike an acquisition.



"This is a rare deal of a decade opportunity with a price that could be easily redeemed," Wedbush analyst Dan Ives wrote in a note to investors Monday.



Microsoft claims it is in talks with Trump regarding the purchase of TikTok by its Chinese owner



Microsoft will likely pay 50 billion that is the estimated value of TikTok as an independent business, in order to acquire the app's operations in the United States of America, Canada, Australia, New Zealand and Australia. The news of the potential deal broke Friday. Since the closing bell of Thursday Microsoft's market capitalization has increased by to $80 billion. This is an indication that investors are enthusiastic about the idea.



Ives declared that TikTok's market value could rise to $200 billion within the next few years, "given the steep user-engagement trajectory of TikTok." DA Davidson analyst Rishi Jaluria said he was in agreement, saying TikTok could expand "exponentially," especially because social media usage has exploded during the coronavirus pandemic.



A consumer-focused investment



Microsoft is a longtime leader in the corporate sector that has changed its focus away from consumer-oriented offerings and tied its future to the success of its cloud business. The TikTok deal will be an important step in the realm of consumer.



It could add a huge name to Microsoft's current consumer-oriented offerings that have had mixed success. While LinkedIn has a growing network of influencers and gaming products Xbox and Minecraft are popular, Microsoft recently shut down its Mixer game streaming platform. Other Microsoft products targeted towards consumers, such as Bing and the now defunct Windows Phone have not been able to make it.



Jaluria said that Microsoft is a company we all know, however, it's a large enterprise software company. "TikTok could be a possibility for Microsoft to grow their presence in the consumer market and their business."



Although most people don't think about dancing teens when they think of enterprise software, the introduction of TikTok could highlight Microsoft's capabilities as a company If Microsoft is able to button-up concerns over the app's privacy policies and host a rapidly growing social network on its Azure cloud platform, it will highlight the geofencing and security capabilities of the service, Jaluria said.



Will it work?
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Despite a few failed bets in the company's past, a number of acquisitions made during Nadella's tenure at Microsoft have proven highly successful.



Jaluria stated that Microsoft's purchase of LinkedIn for $26 billion in 2016 was a "slam-dunk" deal for the company. This was partly because the social media platform was allowed significant autonomy.



"They haven't rebranded it, when you visit the website, they don't label it LinkedIn by Microsoft or something similar to that ... and LinkedIn gives Microsoft lots of data that they can profit from," Jaluria said, saying that a similar approach could be used with TikTok.



He stated, "As long they don't alter the core product and let it run the way that (the app's leadership) prefers, I believe it will be a profitable acquisition."



How TikTok users are reacting to Trump's potential US ban



However, there are risks, too.



As part of the deal, Microsoft committed to ensuring American users' personal information is stored in the United States. Microsoft and TikTok parent ByteDance will need US officials' approval for the deal and could have to make some kind of payment to the US Treasury. In a period of deteriorating relations between China and the US, the purchase of an app created in China could place Microsoft under greater scrutiny.



Microsoft has escaped most of the regulatory scrutiny that has been directed at its Big Tech peers. However it could be affected when it buys an unpopular social media app developed in China that has a large user base. Peter Navarro, White House trade advisor has suggested that Microsoft "divest its Chinese holdings" in order to be able to purchase TikTok. He spoke with CNN's Jim Scuitto Monday.



"I don't think there will be a lot of antitrust scrutiny of this deal because Microsoft does not have a presence in social media used by consumers," Jaluria said. "But a post TikTok Microsoft could be in trouble as they'd be a company that relies on data. There has been some concern about the use of data to create advertising on Facebook and Google.



Then there's the issue of whether TikTok's booming success is long-term sustainable.



If TikTok proves to be the next Instagram (and is capable of standing up to the competition from a Facebook-owned competitor that is due to launch soon) the deal is sure to be a winner for Wedbush, Ives said.



"However in the event that TikTok is the next Snapchat and has a host of monetization and user growth issues in the future, then this acquisition could detract from the value over time, given the the massive competition from Facebook and others," he said.


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