The transaction could be complicated and difficult to accomplish. And Microsoft has in recent years shifted its strategy away from consumers toward businesses.
Still, analysts say the deal is almost certain to be worthwhile for both companies.
“This is a unique deal of a decade opportunity with a price tag that could easily be consummated,” Wedbush analyst Dan Ives wrote in a note to investors Monday.
Microsoft would probably pay some portion of $50 billion — the estimated valuation of TikTok as a standalone business — to take control of the app’s operations in the 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 cap has gained $80 billion, a sign that investors like the idea.
Ives said he estimates TikTok’s valuation could reach $200 billion within just a few years “given the steep user and engagement trajectory of TikTok.” DA Davidson analyst Rishi Jaluria agreed, saying TikTok has the potential to grow “exponentially,” especially because social media use has exploded during the coronavirus pandemic.
A consumer-focused investment
“Microsoft is a company we all know, but it’s very much an enterprise software company,” Jaluria said. “TikTok might be a way for Microsoft to grow their consumer presence and consumer business.”
Although most people don’t think about dancing teens when they think enterprise software, bringing on TikTok could help showcase Microsoft’s corporate prowess: If Microsoft is able to button-up concerns around the app’s data privacy policies and host a rapidly growing social network on its Azure cloud platform, it would underscore the security and geofencing capabilities of the service, Jaluria said.
Will it work?
“They haven’t rebranded it, if you look on the website, they don’t call it LinkedIn by Microsoft or something silly like that … And LinkedIn gives Microsoft so much data that they can benefit from,” Jaluria said, adding that a similar approach could work with TikTok.
“As long as they don’t change the fundamental product, and let it run how (the app’s) leadership wants it to, I think it will be a successful acquisition,” he said.
But there are risks, too.
“I don’t think there will be significant antitrust scrutiny on this deal, because Microsoft doesn’t have any footprint in consumer social media,” Jaluria said. “But a post-TikTok Microsoft could be in crosshairs because they would have a business where they’re leveraging data. That’s the issue people have worried about with Facebook and Google — using data for advertising.”
And then there’s the question of whether TikTok’s explosive success is really sustainable.
“However, if TikTok becomes the next Snapchat and has a host of user growth and monetization issues in the future, then this acquisition could detract from the valuation over time given massive competition from Facebook and others,” he said.