Microsoft Buying TikTok Will VAULT It Ahead of Apple

NASDAQ: MSFT | Microsoft Corp. News, Ratings, and Charts

MSFT – Microsoft (MSFT) is the second-largest company in the world, behind Apple (AAPL). Acquiring TikTok could be the catalyst that causes it surpasses Apple and become the most valuable company, once again.

Currently, Apple (AAPL) is the largest company in the world with a market capitalization of $2.14 trillion. Microsoft (MSFT) is second, with a market cap of $1.71 trillion.

If Microsoft can successfully close the TikTok deal, it could be the catalyst it needs to overtake AAPL. 

TikTok is a video-based social media platform where users create short videos. It has 800 million active users globally and is the fastest-growing social media company and is popular among teenagers and young adults. It has the potential to become as big as Instagram or YouTube.

Due to the format of TikTok, it’s also more conducive to delivering ads in a non-intrusive way. Over the years, Microsoft has become more of an enterprise-focused business with revenue growth coming from cloud computing, but TikTok could once again make it relevant to consumers. 

Recent Developments

It seems that we are getting closer to a TikTok deal, with the September 15th deadline rapidly approaching. Yesterday, TikTok’s CEO, Kevin Mayer resigned which is another sign that an acquisition may be imminent. 

Currently, the lead horse in the race is Microsoft and Walmart (WMT), teaming up for a joint bid. Walmart would become TikTok’s e-commerce provider and handle payment processing.

Oracle (ORCL) is also in the running but not seen as a favorite. Reportedly, Amazon (AMZN) and Google (GOOG) were sniffing around but didn’t think they had a good chance of getting regulatory approval. This high-level of interest among the top tech companies is one indication that TikTok is an attractive asset. 

TikTok’s price is rumored to be somewhere between $20 billion and $30 billion. This makes its value equivalent to a Twitter (TWTR) or Snap (SNAP) as both companies have around a $30 billion market cap. However, despite being a much younger company, TikTok has eclipsed both in terms of users and is set to pass them by in revenue next year.

Forced Selling

Some of the best opportunities in the market come due to forced selling. We see this dynamic at market bottoms when shares are liquidated due to margin calls. An adjacent situation is with spinoffs when companies are forced to divest and separate operations. Spinoffs tend to outperform the market, following an initial period of weakness.

The situation with TikTok is similar. Its parent company, ByteDance is either going to have to sell the company or shut down operations in the US.

ByteDance has been accused by President Trump of close ties with the Chinese Communist Party. It’s gone to great lengths to create separation with its subsidiary by headquartering it in a different country and storing user data separately.

However, these efforts haven’t changed perceptions. For one, there have been many incidents of censorship of videos critical of China or the Chinese government. Second, reports show that there have been breaches of user data and the app is intrusive in terms of mining data from phones. 

These features are also remotely configurable to an unusual degree which means it can be turned on or off. Additionally, the company’s privacy policy states that it has the right to share any data with Chinese authorities if necessary. Many companies and branches of the government have banned TikTok from employees’ phones and computers due to these concerns.

These issues have created an opportunity to buy TikTok, and Microsoft is ideally suited. Microsoft is a natural suitor because it has the resources to make a bid, the technical knowhow to guard user data, and no presence in social networking. This means there are no antitrust concerns unlike Google or Facebook (FB). 

TikTok’s Incredible Potential and Growth

The initial reaction by many grizzled market veterans was to scoff at TikTok’s valuation. However, I don’t think this is correct. 

Both Instagram and YouTube have launched clones of TikTok in recent weeks in recognition of the app’s popularity and potential. Facebook’s stock shot up 13% upon announcing Instagram Reels, which is its version of TikTok. This was an increase of $100 billion in its market cap. 

This is another clue that TikTok’s current price is a bargain for Microsoft. Its product also appeals to teenagers and young adults which is the most coveted demographic for young adults. Its rapid-fire, algorithmic delivery of short videos is also perfectly calibrated for the shorter attention spans of a generation who has grown up with smartphones.

Currently, the app has 800 million active monthly users worldwide. In the US, it has 100 million monthly active users, and 50 million daily active users. Its user numbers have grown by 800% since January 2018. The average user spends 52 minutes a day on the app and opens it eight times a day. 

Remarkably, the app is only a couple of years old. In 2020, it expects to earn $1 billion in revenue and is projecting $6 billion in revenue next year. In China, TikTok has been operating for a longer time and is generating more ad revenue than any other online media company including Alibaba (BABA) and TenCent despite being much younger. 

If current trends continue, TikTok could surpass YouTube and Instagram. Last year, YouTube generated $16 billion in revenue and Instagram’s ad sales were $20 billion.

Closing Thoughts

Many people still think of TikTok as a fad. But, I think it’s more likely that it’s become THE platform for Generation Z. It’s already reached a significant size and has a growth rate that is similar to Facebook or Instagram in the early days. However, it has done a better job of monetizing users. 

Given the premiums that are paid in public markets for growth stocks that have a “sticky” product, high margins, and a triple-digit revenue growth, TikTok at $20 billion to $30 billion is a bargain.

It will give Microsoft a consumer-facing product that will complement its cloud computing division. In addition to its cash-cow software business, it will have two of the fastest-growing, high margin businesses in the world. This will vault it past Apple to become the most valuable company in the world.

Microsoft’s POWR Ratings are also very bullish. It’s rated a “Strong Buy” with an “A” across all POWR components including Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It’s ranked #1 out of 92 out of the Software – Applications group.

Want More Great Investing Ideas?

7 Best ETFs for the NEXT Bull Market

Why Stocks Could Drop 20% in September?

9 “BUY THE DIP” Growth Stocks for 2020


MSFT shares . Year-to-date, MSFT has gained 46.31%, versus a 10.05% rise in the benchmark S&P 500 index during the same period.


About the Author: Jaimini Desai


Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
MSFTGet RatingGet RatingGet Rating
WMTGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


Updated 2024 Stock Market Outlook

The bull market continues to rage on with the S&P 500 (SPY) making new highs. That is the past...the question is what does the future hold? That is why 44 year investment veteran Steve Reitmeister provides this updated 2024 Stock Market Outlook to help you carve a path to outperformance the rest of the year. Read on below for the full story...

3 Energy Stocks Set to Soar Beyond Expectations

Given the geopolitical tensions, increasing global oil demand, and supply adjustments, the energy sector is poised for robust growth. Therefore, investors might consider investing in energy stocks TechnipFMC (FTI), Weatherford International (WFRD), and ChampionX (CHX), which are poised to exceed expectations. Keep reading…

Has Carnival (CCL) Stock Turned Into a Buy After Earnings Release?

Carnival Corporation (CCL) reported record revenue in its most recent quarter but still faces a negative bottom line. The collapse of Francis Scott Key Bridge brings more uncertainty to its financials. Given these events, what stance should one take with CCL stock? Read more to find out…

3 China Stocks Positioned for Long-Term Growth

Despite facing challenges, the Chinese economy has demonstrated resilience, as evidenced by recent robust industrial output and retail sales data. Given this outlook, it might be an opportune time to own three top-notch China stocks, JD.com, Inc. (JD), China Automotive Systems (CAAS), and Youdao, Inc. (DAO). Read on…

Investor Alert: “Buy the Rumor, Sell the News!”

Everyone knows that the Fed is going to cut rates at some point this year. That is the worst kept secret on the planet helping to explain how we keep making new highs for the for the S&P 500 (SPY). Unfortunately that creates an interesting predicament for stocks after rates are cut. Plus another hurdle in the 2024 Presidential election. Steve Reitmeister is here to share his insights on the market outlook along with a preview of his top 12 stocks to outperform. Read on for more...

Read More Stories

More Microsoft Corp. (MSFT) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All MSFT News