Microsoft’s offer for TikTok is one of the more intriguing tech deals to come in recent times – but for investors, the unusual court could make the game tricky.
Microsoft shares surged following the announcement of takeover talks late last week, but fell back on Tuesday amid mounting political tensions surrounding the deal. President Trump told reporters on Monday evening that the United States would ban TikTok on September 15 if an American buyer does not buy it by then, and Chinese officials condemned Trump’s intervention. Microsoft (MSFT) – Get the Microsoft Corporation Report the shares were roughly flat in Wednesday’s trading.
Despite the political drama, investors must remain focused on what TikTok brings: a large, growing, and highly engaged user base.
“It starts and ends with 800 million users, and [TikTok’s] database, â€said Raghee Horner, managing director of futures operations at Simpler Trading, a trade education company.
In one blog post Released Sunday night announcing its continued U.S. operations of TikTok, Microsoft did not include any details on the potential size of the deal, but a CNBC Report fixed it between 10 and 30 billion dollars. Microsoft is one of the few companies that can afford such a price and has reportedly agreed to move TikTok’s database to the United States from China within a year if the deal goes through.
Investors appear to be enjoying the deal, although it is unlikely to result in immediate benefits to the tech giant’s bottom line. TikTok’s revenue last year was estimated to be between $ 200 million and $ 300 million globally – a drop in the bucket by Big Tech standards – and its advertising business is still nascent.
Nonetheless, Microsoft analysts see long-term benefits from owning a popular social network. Such assets are “scarce” and very difficult to build from scratch, noted RBC Capital Markets analyst Alex Zukin in a note this week. Ultimately, an asset like TikTok could offer some advantages: on the one hand, giving Microsoft access to a younger generation of users. Other potential moves could include mixing TikTok’s advertising business with Bing’s, or integrating social video into its gaming business. Microsoft would also likely move cloud workloads from TikTok to Azure from the start.
Wedbush analyst Dan Ives estimated that a TikTok buyout could shift investor attention to the untapped potential of Microsoft’s consumer business and boost its valuation to $ 2,000 billion. Microsoft’s market cap today is around $ 1.6 trillion.
While the deal is not guaranteed, a purchase from TikTok would be a boon to Microsoft stocks because of the potential benefits to Microsoft’s consumer efforts, Horner added. Deal that made TikTok grow even faster could also benefit Fastly (FSLY) – Get the Class A report from Fastly, Inc., which operates the TikTok content delivery network. TikTok is already considered one of Fastly’s biggest customers, and Fastly’s stock hit an all-time high on Monday after Microsoft confirmed TikTok buyout talks.
Likewise, there are risks – and opportunities – if the deal were to collapse before the September 15 deadline. Reacting to the possibility of a ban, some high-profile TikTokers have said they will direct their subscribers to alternative platforms. Others circulated a petition imploring Trump to keep the platform alive.
“There’s another side to this: If the deal fails, Facebook could benefit,†Horner added. “We’re already seeing some people on TikTok switch to Instagram or Facebook.”
Just today, Facebook (FB) – Get the Class A report from Meta Platforms Inc. launched Instagram Reels, a competitor to TikTok also focused on short edited video clips. Reels are live today in 50 countries, Facebook said.
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