The most popular social media platform in America – Tik Tok – has been under heavy fire due to its affiliation with Chinese Government and its risk of espionage.
The social media platform has allegedly been allowing the Chinese Communist Party to view data and personal information of Tik Tok users.
Although ByteDance, the owner of Tik Tok, has been firm on their stance that this information is completely false.
Cybersecurity experts have been quoted saying “the social media giant not only collects troves of personal data on you, but also cooperates with the CCP, extending China’s surveillance and censorship reach beyond its borders.”
Due to the way the CCP has been treating their own citizens it is not outlandish to believe they would spy on other nations citizens.
President Donald Trump has been actively doing what he can to put this potential threat to an end. He gave ByteDance 45 days to strike a deal with an American company to continue its usage in America.
Don’t get confused – this will be no small deal and will likely have a huge impact on the company that decides to purchase the platform.
Tik Tok’s value is estimated at a whopping 10-30 billion dollars.
It is clear that there are very few companies that will be able to write out a check as large as this one, so who’s going to be the big spender?
While Microsoft, being worth over one trillion dollars, will not have a problem with the price tag for Tik Tok, there may be other barriers to entry for the tech giant.
President Trump demanded not only to carve Tik Tok out of ByteDance, but the company also must also have a plan to ensure the American peoples data and personal information is protected.
Most experts believe it would take at least a year for Microsoft to create the necessary encryption software that Trump demands.
Therefore, Microsoft would have to use ByteDance’s current code while it creates its own. This will create a few month span where Tik Tok users will still be in possible danger of information theft.
Many speculate the president will not allow this to happen and Tik Tok will either temporarily shut down while Microsoft is preparing their codes or Tik Tok will be permanently shut down.
So lets say things go well for Tik Tok and it remains afloat while sailing under Microsoft’s flag, how will this deal affect Microsoft?
At a first glance the acquisition of Tik Tok, which generates billions of dollars a year, will positively affect Microsoft’s revenue.
Secondly, Tik Tok may be the start of an expanding process for Microsoft – increasing their presence in the media sector, which they’ve seen the power of through LinkedIn.
Back in June 2016 Microsoft acquired LinkedIn and its stock price rose over 16% throughout July 2016.
Microsoft can use Tik Tok to generate billions of dollars in advertising revenue and they can also promote their own new products on the site.
So can investors expect a similar stock increase from the acquisition of Tik Tok as for LinkedIn?
While it is highly possible the answer is definitely unclear.
Some would argue that both are social media sites, so the result should be similar, right? However, there is a chance acquisition does not work out very well for Microsoft.
If you haven’t used either LinkedIn nor Tik Tok – it would be the equal as to comparing pagers to walkmans. They are not the same.
If you have used both social media sites – you know what we are talking about.
LinkedIn is a multi purpose platform, allowing users to connect with potential employers/ employees, alumni of their colleges, and colleagues from work. It also happens to be used for networking, educational and entertainment purposes.
On the other hand, Tik Tok is strictly used for entertainment purposes. E-boys and E-girls zealously performing their dancing routines
Based on the nature of Tik Tok’s use-cases the longevity of its popularity is unpredictable. The hype might fizz out or it could get shelved through acquisition, as there have been countless examples of socials media sites to rise and fall in the 20th century – for example Vine and MySpace.
Most importantly, Tik Tok does not fit into Microsoft’s cloud narrative which has propelled them to their 1.5 trillion dollar market cap.
Microsoft has offered cloud services such as Office which have been the benchmark for their success.
Adding Tik Tok may overshadow one of the very things that has helped Microsoft to become what it is today.
Investors ought to be cautious with the media hype over the possible Microsoft – Tik Tok deal and do their homework.
While it is rare to go wrong betting on a big blue chip like Microsoft, some options traders may get upset if the deal does not propel Microsoft stock as the hype suggests.