The TikTok American War will be pulled off by Microsoft?

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The TikTok American War will be pulled off by Microsoft?

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Thanks to Trump, the topic of TikTok has once again become a hot topic! Xiao Bian Bai Huahua's face was also beaten, and I told you not to worry too much in the last issue! TvT came instantly after this face-slapped!

U.S. President Donald Trump has stepped up its crackdown on TikTok. After calling for a ban on TikTok, Trump delayed the app’s business in the United States.

To this end, TikTok put forward a proposal to the White House, ByteDance will completely divest TikTok's business in the United States, and Microsoft will be responsible for these businesses and protect the data of TikTok users in the United States. Microsoft promised in this regard that this acquisition transaction will be completed before September 15th!

Although there are still many unknowns, for Microsoft, buying TikTok is a bold and potentially profitable bet, so why should Microsoft buy TikTok? What are the risks of this transaction?

Tiktok's huge user data

The most intuitive reason is the user data owned by TikTok. The key part of the TikTok transaction is the user data that Microsoft can gain access to.

Microsoft also acknowledged the importance of the data in the blog confirming the acquisition negotiations, which will bring a lot of benefits to Microsoft.

Microsoft has long used Xbox Live to provide Microsoft Research support for future software and hardware projects. And usage data can help game developers and Microsoft better understand how people use Xbox. Ultimately, it will also help Microsoft develop and improve its products.

In addition, Microsoft has all the data it needs in the use of software business, but in recent years it has not been successful in serving pure consumers, which leaves the company's insight into consumer behavior in a blank.

And TikTok can help correct this blind spot of Microsoft, and even affect the development of other software and services within the company.

Running TikTok alone allows Microsoft to make full use of all its important data and integration points, and it can position TikTok as a YouTube and Facebook competitor, which Microsoft has always wanted.

Assisting Microsoft to double the digital advertising market

According to eMarketer's data, the online advertising market is developing rapidly and will grow by about 16% in 2019. Although growth will slow this year, the market may rebound strongly in 2021, with an expected growth of about 17%.

And through the acquisition of TikTok, Microsoft can become one of the important players in the field of digital advertising. After all, TikTok has as many as 80 million users in the United States. In recent months, with the Covid-19 pandemic, TikTok's base has been growing rapidly, which means that TikTok's advertising market is also expanding!

Although TikTok has not yet begun to effectively use its users to monetize (it is estimated that the average revenue per user is about $1 per quarter compared to Facebook's about $33), it has great potential.

TikTok users are very active, spending more than 50 minutes on the app every day, which is more time than Facebook and Snapchat users who spend 30 to 40 minutes.

The TikTok American War will be pulled off by Microsoft?

Having said that, acquisitions may also bring some risks. Most social media companies collect user data, build profiles, and use this to better target ads.

These growing privacy issues have caused regulatory scrutiny of companies such as Facebook and Google. If Microsoft is to continue to invest heavily in social media and advertising, these issues need to be addressed.

It is estimated that the value of TikTok's business in the United States may be about 20 billion U.S. dollars, which is based on the estimated U.S. revenue of about 500 million U.S. dollars in 2020 and a price-earnings ratio of 40 times.

The TikTok American War will be pulled off by Microsoft?

Although this multiple is much higher than the P/E ratios of Facebook and Snap (the P/E ratios at the time of the IPO were about 21 times and 24 times respectively), we think this is reasonable because this only applies to US businesses, which may have better Income potential.

Therefore, it is difficult to say exactly how Microsoft's potential TikTok acquisition will proceed. After all, this is an unusual transaction for the company, especially when the US government continues to face threats.

What's more, Microsoft usually does not confirm that it is in acquisition negotiations before reaching a deal, but we can still get a glimpse of it in the company's blog post (which is especially grateful to President Trump for his personal participation).

In addition, according to the "Wall Street Journal", Microsoft's blog posts may have been pressured by allies of the president and prompted the company to publicly acknowledge the transaction.

Moreover, it is difficult to predict whether the acquisition will be completed smoothly. Microsoft previously had no operational experience, management experience, or content review experience for social software like TikTok. Therefore, the acquisition of TikTok is also a huge challenge for Microsoft!

Now, Microsoft has also made it clear: The acquisition is still in preliminary discussions, and the transaction may break down. In the next few weeks, TikTok may have more twists and turns. Everything is variable. Whether TikTok’s dividend is a short-lived or an industry outlet, I’m afraid it will be tested by time (perhaps Trump). !

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