TikTok Sale: Who's Going To Propose?
Sam Weigley
Strategist & Consultant - Insight & Analysis | Business Strategy | Consumer Research
BREAKING NEWS THAT SHOULD SHOCK NO ONE!
President Trump’s administration is planning to request that Chinese-owned ByteDance divest itself of U.S.-based TikTok.
In fairness, Trump and his team had been floating a blanket ban on the service in the U.S. over concerns that the Chinese firm would use the data from TikTok and turn it over to Chinese authorities. ByteDance has said they would never do such a thing, but mere promises don’t cut it in this political environment.
So TikTok’s going on the market, and it’s looking for a shotgun marriage with a prince charming. According to Reuters, investors are valuing the service at $50 billion, an impressive 50x the company’s expected 2020 revenue of about $1 billion. To be fair, there’s only a handful of companies in the U.S. that could reasonably purchase the service given the hefty price tag.
Below are some potential suitors and the likelihood, in my opinion, of a deal coming to fruition. I'm sure there are a few more I could have written about, but these just felt right. Cash on hand figures are from the respective companies' most recent balance sheet.
Microsoft ($136.53 billion in cash, cash equivalents and short-term securities)
As I'm currently writing this, the rumor on the street (i.e. the web) is that Microsoft is in talks to purchase the burgeoning service. With its cash pile, Microsoft is one of the few firms that would be able to do so.
Eh, despite the reports, I’m not so sure about this option. Although Microsoft used to be more entrenched in the media business (think MSN and MSNBC), it has really focused its efforts on the enterprise space in the Satya Nadella era (that said, it is involved with Minecraft). Even its $26 billion purchase of LinkedIn a few years ago was more focused on capturing more enterprise dollars rather than trying to get into social media. That said, given the reports, Microsoft has probably done some due dilligence.
Likelihood of purchase: Medium
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Facebook ($58.24 billion in cash, cash equivalents and marketable securities)
Facebook has an amazing talent. It sees a rival firm gaining traction, and, at the right time, launches a competing product to blunt its rival's growth.
What do I mean? Back in 2011, when Twitter was really starting to go mainstream – Facebook launched the newsfeed. A few years later, Facebook launched Instagram stories, a way of throttling Snapchat’s nascent power. Granted, Twitter and Snapchat are still very popular companies. But their growth has been significantly blunted by Facebook’s (and Instagram’s) sheer scale.
Now, Facebook is planning to release Instagram Reels, a very similar feature to TikTok. Apparently, Facebook is already trying to lure TikTok’s top creators with hefty pay packages. Therefore, it’s hard to see why Facebook would make this purchase when it has a competing product coming out.
Likelihood of purchase: Low
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Sequoia Capital, et al.
It was Sequoia Capital, along with other investors, who valued TikTok at $50 billion. Reports note the investors are in talks to purchase a majority stake of TikTok from the current parent company, ByteDance. To extradite TikTok from any Chinese influence, ByteDance would hold no operating responsibilities nor board seats. Eventually, the company would be spun off into its own public company, perhaps making a few VCs very, very, very, very, very rich. (If Facebook doesn’t destroy them with Reels).
I’m trying to see where TikTok fits into other corporate strategies, and frankly I don’t see a great fit. This outcome seems most likely to me.
Likelihood of purchase: High
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The Walt Disney Company ($14.34 billion in cash and cash equivalents)
After getting passed over for Bob Iger’s job a few months ago, Disney’s head of strategy Kevin Mayer took the top job at TikTok. Talk about a blessing in disguise.
It would be very ironic if Mayer then jumped back over to the Mouse House just a few months later. Nevertheless, Disney has tried to get into the social media space before (Iger writes in his memoir that Disney was in deep talks to buy Twitter until Jack Dorsey pulled out at the last second).
Unfortunately, Disney’s timing is incredibly poor. Two reasons. (1) It’s coming off its recent $71.3 billion purchase of 21st Century Fox. (2) Nearly every business unit outside of Disney+ has been completely hosed by the pandemic. This company is rightfully in cash preservation mode and would have to go into serious debt to purchase TikTok.
Likelihood of purchase: Very Low
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Comcast ($13.94 billion in cash and cash equivalents)
Comcast, which lost out to the Mouse House for 21st Century Fox, has some history with Gen Z-focused content. Awesomeness TV, a Gen Z-focused multichannel network, was purchased from DreamWorks in 2013, which in turn was purchased from Comcast’s NBCUniversal in 2018.
Comcast has certainly built itself to become a vertically integrated media powerhouse. But given the company’s cash position, I don’t expect them to make such a large bid.
Likelihood of purchase: Very Low
Who do you think is TikTok’s likeliest suitor? Let me know your thoughts in the comments below. Also, did you like what you read? Check out some of my other articles here:
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