Climb TikTok Like a Tree – The Average Joe

    Climb TikTok Like a Tree

    Victor Lei ā€” Head of Research

    August 13, 2020

    August 13, 2020

    TikTok, a video-based social media platform, was first launched in 2016 by its Chinese parent company, ByteDance. In 4 years, the app grew to over global 800m users, won the hearts of Gen ZĀ and became a potential security threat in the eyes of the US government. Threats include potential surveillance on US citizens, access to sensitive/hackable data and spreading of false information.

    • On June 31, President Trump threatened to ban the use of TikTok in the US by Sept. 15 unless TikTok sold its US division to a non-Chinese buyer.
    • Microsoft wasted no time before jumping at the opportunity. On Aug. 2, Microsoft announced their plans to acquire TikTokā€™s US division.

    45 days to make the impossible happen

    Buying and splitting a social network up is a notoriously difficult task. No one has everĀ split upĀ a social media platform along country lines which requires splitting servers, usersĀ and databases amongst other challenges.

    With a price tag betweenĀ $20b-$50bĀ and technical complexities surrounding the deal, not many companies can afford to buy TikTok’s US operations. Microsoft is the front runner in negotiating the purchase of TikTok’s US operations and its ~100m US users. A deal will likely include TikTokā€™s Canada, Australia, and New Zealand operations, countries that are closely aligned with the US in national security matters.

    Fool’s gold

    Even if a deal is completed, the value of owning USā€™ TikTok may not be as lucrative as it seems. TikTok will be restricted from growing beyond the 4 countries, severely limiting its growth potential. In comparison,Ā 89%Ā of Instagram’s 1b+ users and overĀ 80%Ā of Snapchat’s 236m+ users are outside the US.

    Not only will their growth be limited, Instagram has already begun copying TikTok’s features withĀ Reels. Other smaller competitors like Triller, LikeeĀ and Dubsmash have seen aĀ large inflowĀ of downloads since the announcement of a potential TikTok ban.

    Verdict: Can an investor profit from a TikTok deal?

    The value to Microsoft’s ($MSFT) stock price will depend on the price tag paid to acquire the business, integration and mergerĀ costsĀ and restrictions placed on a US-owned TikTok. A successful deal will likely have a small but insignificant impact on their stock price. A deal worth $40b would make up less than 3% of Microsoftā€™s massive $1.5t valuation.

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