Microsoft (MSFT) in talks of acquiring TikTok

Microsoft Corp. (MSFT) shares rose slightly Friday following multiple media reports that it is in talks to buy TikTok because President Donald Trump is set to order the Chinese owner of the dance app, ByteDance, to divest his ownership of TikTok ‘s U.S. operations

Microsoft’s stock rose around $2 after Bloomberg first published the story, but closed $1.11, or 0.5 percent, when the Wall Street Journal and others followed with identical stories at $205.01, citing sources familiar with the negotiations.

Wedbush Securities said in a customer note Friday that TikTok — which declined to pass on details to the Chinese government but was gradually regarded by U.S. officials as a security threat — is estimated at $50 billion in private markets. Microsoft’s acquisition of TikTok, which lets hundreds of millions of users post short videos worldwide, will be “a major bet on consumers social media space that the organization has kept away from over the last decade, “wrote Wedbush analyst Dan Ives.

Microsoft (MSFT): Banning of TikTok in USA

On July 31, Trump told reporters on Air Force One that, according to the Newspaper, he did not support a deal to let a U.S. corporation purchase American operations from TikTok, and that he had the authority to ban them.

US officials are worried that TikTok might pass on the data it gathers to the Chinese government from American users. This concern is promoted by a law of 2018 that requires regulators to investigate transactions involving foreign investment in companies with more than one million U.S. users having access to their genetic, biometric, political, health, or location data, the Journal noted.

Microsoft (MSFT) confirms talks of purchase with Tiktok

According to a recent statement on Microsoft’s blog, the company confirmed that they are in talks of purchasing Tiktok and is making an agreement with the United States President.

Microsoft (MSFT): How much is TikTok Worth?

There is no definitive valuation for TikTok as a privately held enterprise. Moreover, the uncertainty about the future of U.S. operations at TikTok makes it difficult to estimate its value.

Having said that, I think a decent starting point is $5 billion for the valuation of U.S. operations at TikTok.

What could that be? Investors looking to take over the company recently priced Bytedance at $50 billion, according to a July 28 Reuters report. According to Wallaroomedia, 10 per cent of TikTok’s monthly active users—80 million out of 800 million in July 2020—were in the U.S.

Also note, many factors could drop that valuation — including legal and political challenges. Yet the acceleration of TikTok ‘s growth and the possibility of Microsoft ownership limiting the risk of U.S. user data coming to China could mean that Microsoft will have to pay a control premium for the deal to go through.

Microsoft (MSFT): How Tiktok could boost Microsoft

TikTok ‘s U.S. operations would offset some of the decline in sales and give Microsoft a stronger role in Facebook and YouTube-dominated social media market. TikTok use has increased since the pandemic started — with the number of active users increasing between January 21 and March 24, according to the New York Times, by 15.1 per cent.

TikTok has benefited from the pandemic — resulting in more monthly active American users and a significant amount of US revenue. For example, according to Wallaroomedia, Tik Tok’s number of monthly active users in the U.S. rose from 20 million in November 2018 to 80 million in July 2020 at an annual rate of 122 per cent.

According to the statistics, this June, TikTok’s US revenue for 2020 was projected at $500 million, about twice TikTok ‘s worldwide revenue of around $200 million to $300 million.

Even though U.S. revenues from TikTok are low compared to total sales of $139 billion from Microsoft, its growing growth could pay off for shareholders in Microsoft.

Is Microsoft a good buy?

According to TikTok’s statistics I would say yes. During this pandemic TikTok has gain millions more of users due to kids being out of school.Having said that with TikTok being the most trendy social media, I think Microsoft would benefit greatly from TikToks acquisition.

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Jake Page
Jake Page

Investor of 4 years and Managing Editor of Money Midnight, a news outlet focused on highly profitable investment ideas and bold underground research.

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