Update (1800ET): When we saw the first headline announcing a potential buy-out of TikTok by Microsoft about 45 minutes ago, we were inclined to brush it off as a thinly-sourced rumor, considering the source (senior Fox Business correspondent Charlie Gasparino) and the timing (late on a Friday afternoon, and two days after a historic Big Tech anti-trust hearing).
SCOOP via @LJMoynihan: As @Microsoft talks to buy @tiktok_us heat up, two to three other serious buyers are talking to the short video platform about a possible acquisition, sources with direct knowledge tell @FoxBusiness.— Charles Gasparino (@CGasparino) July 31, 2020
Microsoft avoided that hearing presumably because it has (wisely) kept a restrained presence in the social media space (LinkedIn has more than half a billion members, making it roughly 1/4th the size of Facebook), Otherwise, investors would have been plagued by stress flashbacks to 1998 and a much-younger Bill Gates making his own circus-like appearance in front of Congress.
Hauling Satya Nadella in front of Congress would have been sort of incongruous, like when the House Financial Services committee dragged the CEO of the Bank of New York - who is incidentally now the CEO of Wells Fargo - to a hearing with six other Wall Street CEOs last April only to seemingly learn, in real time, that the bank had almost no public-facing business.
So, with all the regulatory peril surrounding the social media business, why in the hell would Microsoft want to buy one? Particularly a business that carries the added baggage of federal investigation and all the other political pressure surrounding the company?
But a few minutes later, Bloomberg and a handful of other financial news organizations appeared to confirm the story (using their own off-the-record sources; Microsoft has yet to comment). Here's what BBG has to say:
Microsoft Corp. is exploring an acquisition of TikTok’s operations in the U.S., according to a people familiar with the matter. A deal would give the software company a popular social-media service and relieve U.S. government pressure on the Chinese owner of the video-sharing app.
The Trump administration has been weighing whether to direct China-based ByteDance Ltd. to divest its stake in TikTok’s U.S. operations, according to several people familiar with the issue. The U.S. has been investigating potential national security risks due to the Chinese company’s control of the app.
While the administration was prepared to announce an order as soon as Friday, according to three people familiar with the matter, another person said later that the decision was on hold, pending further review by President Donald Trump. All of the people asked not to be identified because the deliberations are private.
Setting aside the obvious problems, TikTok is certainly hot right now, and a consortium of venture capitalists that backed TikTok parent ByteDance have reportedly put together a plan for the firms to buy TikTok and move it to a US jurisdiction, for the hefty price of $50 billion. That's $18 billion more than Snap is currently work.
If $MSFT's attention is genuine, the big question for investors will be: Is this another Skype? Or another Minecraft? MSFT's 2011 acquisition of Skype has been derideded as a tactical blunder, while the company's acquisition of Minecraft in 2014 has generated billions of dollars in revenue.
A purchase of TikTok would represent a huge coup for Microsoft, which would gain a popular consumer app that has won over young people with a steady diet of dance videos, lip-syncing clips and viral memes. The company has dabbled in social-media investments in the past, but hasn’t developed a popular service of its own in the lucrative sector. Microsoft acquired the LinkedIn job-hunting and corporate networking company for $26.2 billion in 2016.
Microsoft can point to one acquisition that came with a massive existing community of users that has increased under its ownership -- the 2014 deal for Minecraft, the best-selling video game ever.
Other purchases of popular services have gone less well. The 2011 pickup of Skype led to several years of stagnation for the voice-calling service and Microsoft fell behind newer products in the category. Outside of Xbox, the company hasn’t focused on younger consumers. A TikTok deal could change that, though, and give Microsoft “a crown jewel on the consumer social media front,” Dan Ives, an analyst at Wedbush Securities, wrote in a note to investors Friday.
TikTok has repeatedly rejected accusations that it feeds user data to China or is beholden to Beijing, even though ByteDance is based there. TikTok now has a U.S.-based chief executive officer and ByteDance has considered making other organizational changes to satisfy U.S. authorities.
"Hundreds of millions of people come to TikTok for entertainment and connection, including our community of creators and artists who are building livelihoods from the platform,” a TikTok spokeswoman said Friday. “We’re motivated by their passion and creativity, and committed to protecting their privacy and safety as we continue working to bring joy to families and meaningful careers to those who create on our platform.”
In a year where tech acquisitions suddenly seem verboten, buying TikTok would definitely generate a lot of press interest. Though President Trump seemingly reminds reporters every day now that the US is "looking into" potentially "doing something" about TikTok and the threat to national security it purportedly represents.
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Update (1350ET): While a large dose of salt should be taken, Charlie Gasparino is reporting that MSFT may be a potential buyer...
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It appears a decision has been made on the viral social media app TikTok - what Reddit CEO Steve Huffman called " fundamentally parasitic."
Bloomberg reports that, according to people familiar with the matter, President Trump plans to sign an order to direct China’s ByteDance Ltd.’s to divest its ownership of the popular app.
The U.S. has been reviewing potential national security risks due to the company’s control of the app, and the order could be announced as soon as Friday.
This comes after Josh Hawley and Dick Blumenthal asked for an investigation because of reports of violations of Americans' civil liberties by sharing private info with the CCP.
"Based on numerous reports, we are extremely concerned that Zoom and TikTok have disclosed private information about Americans to the PRC and engaged in censorship on behalf of the Chinese government," the letter read.
Snap shares are jumping on the news...
We wonder just how this will be achieved and most importantly, if China will allow it.