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That’s my opinion. But again, that’s not my money. According to last week’s Reuters report, some investors at TikTok’s parent company ByteDance Ltd. think it’s definitely worth it. Your right to think so. We will soon know its true value and, most importantly, the value of the Microsoft CEO.
After speculation throughout the weekend, the American software giant on Monday morning (Beijing time) confirmed its intention to acquire this short video sensation, which has more than 100 million users in the United States alone United.
The statement, by the way, started with the words: “After a conversation between Microsoft CEO Satya Nadella and President Donald J. Trump.” And it came after Trump said he could totally ban TikTok in the United States.
ByteDance, the owner of the Beijing-based TikTok, was not mentioned until the third paragraph. I don’t want to downplay the importance of founder Zhang Yiming or his team who have done a fabulous job building this online powerhouse, but the deal has already pushed them to the sidelines.
Now Lord Nadella decides who must reign and who must withdraw from the throne.
The architect of Microsoft’s transformation from personal computer operating systems to cloud computing is already considering several important proposals. In the first year after 2014, he took over as CEO, acquiring the Swedish gaming company Minecraft; he subsequently entered into a $ 24 billion purchase agreement with professional communications network LinkedIn Corp.
The earlier idea that TikTok, or at least US operations, would be acquired by existing ByteDance investors looked good on paper. But that likely would not have allayed the U.S. concerns about data privacy and Chinese control, given how opaque the ownership structure would be.
As my colleague Tae Kim already wrote, the TikTok-Microsoft deal makes perfect sense, as it could allay antitrust concerns within days after members of Congress summoned executives from four other tech companies “on the mat.” I also believe that this could address the issue of data transparency by transferring TikTok’s US operations to an accredited, publicly-traded US company.
Microsoft is also thinking, specifically explaining how to transfer and protect user data. The company “will ensure that all US personal data of TikTok users is transferred and remains in the United States,” Microsoft said. He added that data currently stored outside the US will be removed from foreign servers.
But first, Microsoft will have to convince the American administration. The company made it clear which buttons it would push by mentioning the US Treasury Department and the US Foreign Investment Committee in its statement, even before ByteDance was mentioned.
Some US lawmakers are already approving the deal. “Congratulations everyone,” Senator Lindsey Graham rejoiced on Twitter. His fellow Republican John Corny and others also appear to be ready to agree.
No one asks for the opinion of Congress, but their support for this agreement gives it an important political boost. Democratic Senator Richard Blumenthal is one of the most cautious; He notes that such an agreement “should not distract us from the need to combat covert espionage and surveillance” by Chinese companies.
Other names leaked by bankers or insiders from ByteDance are likely to emerge from the ranks of potential stakeholders in an attempt to create the illusion of competition. But Microsoft has the credibility and strategy to push the deal through true Washington gatekeepers, leaving ByteDance with few alternatives.
Nadella has the burden of doing this, and as soon as possible. Microsoft has announced plans to complete the talks by September 15.
And now let’s take a look at the product itself.
ByteDance’s revenue last year was $ 17 billion and its earnings were $ 3 billion. However, this applies to the entire company, which has at least 20 devices, including Douyin (the local version of TikTok) and the Toutiao news channel. According to The Information, TikTok’s worldwide revenue last year was approximately $ 300 million, or less than 2 percent. All the companies that CB Insights cites as one of the world’s toughest “unicorns” (worth $ 140 billion). TikTok expects sales of $ 500 million in the United States this year, according to The Information.
According to Microsoft, it intends to buy operations in the United States, Canada, Australia, and New Zealand. A little more content in the three smaller markets, and we’re seeing annual revenue of about $ 700 million this year, perhaps a billion if they succeed. India and the United Kingdom were not mentioned.
And that’s very important, given that Britain is also a key security partner for Five Eyes and much bigger than New Zealand and Australia, and India is the largest potential market for TikTok, but it has been blocked since a recent border clash. .
Facebook Inc. has a P / S ratio of 9.6 and Twitter Inc. has a P / S ratio of 8.5. Sure, TikTok is growing faster, but the same has already happened with Snap Inc., a social media application that was once in fashion and whose initial public offering was announced in 2017. And which announced 590 percent a year before quote. revenue growth. Snap now has a P / S ratio of 16.5 and the company has yet to release its annual earnings report.
The idea that TikTok, worth $ 50 billion, plus the UK, India, and a dozen other emerging markets, sounds a bit of a stretch. ByteDance management can be confident that both Nadella and himself know this. However, his duty to shareholders is to put as much pressure as possible on the owners of TikTok.
After all regulators are calm and the ego is sealed to complete the deal, Microsoft will reasonably expect a big discount. It’s its size that will show what Nadella is worth and will make TikTok part of the decade.
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