Could Microsoft Buy TikTok?

Written by Jennifer Clark
Posted August 5, 2020

Over the weekend, President Trump announced he was planning to ban the popular social media app TikTok over allegations the app poses a national security threat. Since then, there has been talk about Microsoft (NASDAQ: MSFT) purchasing the app from its Chinese parent company, ByteDance. 

Trump spoke openly about Microsoft buying TikTok, saying he would approve of an American-based company like Microsoft purchasing it. The president is interested in the company that purchases the app being large and American-based, and he is giving Microsoft or potential buyers the opportunity to finalize a deal by Sept. 15. After Sept. 15, Trump says he will ban the popular app that has kept the majority of Americans entertained during the coronavirus quarantine.

Buying TikTok would be a beneficial deal for Microsoft. Microsoft has had a slight struggle appealing to younger generations, so this popular social media app that generations of all ages, but mostly the younger ones, use to share their creativity and cure their boredom would be a way for Microsoft to entice young users who don’t tend to use its products. 

I remember when I was younger, my family had a PC and we used Microsoft operating systems. It’s the brand that I grew up with but eventually ended up being a brand that was viewed as being “old” or “outdated,” even if its technologies and products weren’t. Compared to other companies, it’s been hard for Microsoft to appeal to a younger customer base, especially when its competitors have products that have caught the attention of younger generations. Google has its Chromebooks and Apple has its iPhones and iPads — all products that have become popular because of their simplicity and practicality. 

This doesn’t mean Microsoft doesn’t have those qualities. The issue is the company's just not seen as having those qualities. If Microsoft acquires TikTok, then it could use that platform to sell its products to the younger audience and let them know it has products they might like, too. Jefferies' analyst Brent Thill recently said, “So if they can get the younger audience today then that’s a vehicle to then sell other solutions.”

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Microsoft's success in recent years has come from the cloud and server business along with its productivity suits. In the fourth quarter of 2020, the company’s intelligent cloud sector (that includes its Azure cloud-computing business) earned $13.4 billion, and its productivity and business process sector earn $11.8 billion. Microsoft continues to be successful and is making money, but now more than ever it wants to grow other sectors of its business. The company has plans to launch a gaming platform similar to Netflix, so focusing on younger generations will be crucial to Microsoft's survival in the tech industry. Thill said: "I think the brand has changed at Microsoft. It used to be kind of stale, but [CEO] Nadella has done a fantastic job of going after everyone. And so, we think that Microsoft, again, is the best neutral third party when you look at who could potentially do this."

Purchasing TikTok would expand Microsoft’s efforts with the younger generations. There could be plans for integrating TikTok with Microsoft’s Xbox-gaming platforms, which could be huge and refresh the Xbox platform. 

However, TikTok has been accused of being used as a tool for the Chinese military and intelligent services, as well as spying on its users. If Microsoft is able to buy the app, then TikTok could escape this type of scrutiny since Microsoft works with the U.S. government and has been a well-known, trusted company for decades.

Only time will tell whether this deal becomes a reality. If it does come to fruition, it could be a blessing for both TikTok and Microsoft.

Until next time,

Jennifer Clark
Pro Trader Today
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