Notes

Microsoft Wants to Buy TikTok

Many analysts have described the acquisition as a "coup" for Microsoft as a chance to acquire one of the fastest growing social media platforms at a time when TikTok may be desperate to complete an acquisition.



"This is a unique deal of a lifetime opportunity with a price tag that could easily be consummated," Wedbush analyst Dan Ives wrote in an email to investors on Monday.



Microsoft claims that it is in talks with Trump about buying TikTok from its Chinese owner



Microsoft will likely pay a part of $50 billion - the estimated valuation of TikTok as a stand-alone business - to acquire control of TikTok's operations in United States, Canada, Australia and New Zealand. News of the possible deal broke on Friday, and since the closing bell on Thursday, Microsoft's market capitalization has increased by $80 billion, which is a indication that investors are enthusiastic about the idea.



Ives said he estimates TikTok's valuation could reach $200 billion within just a few years "given the incredibly high user and engagement growth of TikTok." DA Davidson analyst Rishi Jaluria agreed, stating that TikTok could increase "exponentially," especially because social media use has exploded during the coronavirus pandemic.



An investment that is geared towards consumers



Microsoft is a longtime leader in the corporate world that has shifted its focus away from consumer-oriented offerings and tied its future success to the growth of its cloud business. The TikTok deal will be an important push in the consumer space.



It would be a major improvement to Microsoft's consumer-oriented offerings which 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 offerings aimed at consumers, such as Bing and the now defunct Windows phone, have failed.



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



While the majority of people don't think of dancing teenagers when they think of enterprise software, bringing on TikTok could help showcase Microsoft's corporate prowess: If Microsoft is able to address concerns around the app's data privacy policies and host a rapidly expanding social network on its Azure cloud platform, it will highlight the security and geofencing capabilities of the service, Jaluria said.



It will work.



Despite a few failed bets in the company's past, the majority of acquisitions made under Nadella's reign at Microsoft have been extremely successful.



Jaluria said that Microsoft's acquisition 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 considerable autonomy.



"They haven't changed the name of LinkedIn. If you visit the site they don't use the name LinkedIn By Microsoft or anything silly... And LinkedIn gives Microsoft this data which they can use," Jaluria stated, noting that a similar strategy could be employed with TikTok.



"As long as they don't alter the fundamental product and let it run according to how (the app's) leadership wants it to, I think it will be a great acquisition," he said.



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



However, there are also risks.



As part of the deal, Microsoft committed to ensuring American users' personal information is stored in the United States. Microsoft and TikTok parent company ByteDance must agree to the agreement. They might also need to pay a certain amount to the US Treasury. The acquisition of an app developed in China could bring new scrutiny to Microsoft at a time when relations between China and the United States, particularly in relation to technology, are at a low.



Microsoft has escaped much of the regulatory scrutiny that has been directed at its Big Tech peers. However it could be affected if it purchases a controversial social-media app made in China with a huge user base. Peter Navarro, White House trade advisor, has suggested that Microsoft "divest its Chinese holdings" in order for it to be allowed to acquire TikTok. He spoke to CNN's Jim Scuitto Monday.



Jaluria said that "I don’t believe there will be any significant antitrust scrutiny over this deal, because Microsoft doesn’t have any footprint on social media used by consumers." "But a post-TikTok Microsoft could find itself in the crosshairs because they'd have a business where they're leveraging data. minecraft crafting Many have expressed concern over the use of data for advertising on Facebook and Google.



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



If TikTok proves to be the next Instagram (and is able to withstand the competition from a Facebook-owned competitor launching soon) it will be a win-win according to Wedbush's Ives said.



"However in the event that TikTok becomes the next Snapchat and has a host of monetization and user growth issues in the near future, this acquisition could hurt the value over time due to massive competition from Facebook and other companies," he said.


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