What Buying TikTok Could Mean For Microsoft

Microsoft Corporation (NASDAQ: MSFT) is in the spotlight after press reports suggest that Redmond could acquire social media platform TikTok’s operations in the U.S., Canada, New Zealand and Australia, according to BofA Securities.

The Microsoft Analyst: Kash Rangan maintained a Buy rating on Microsoft with a $250 price target.

The Microsoft-TikTok Thesis: If Microsoft’s acquisition is successful, Rangan estimates that monetization from TikTok’s user base could generate up to $630 million in the base case and $6 billion in the bull case. (See his track record here.)

Acquiring these operations could allow Microsoft “to create revenue synergies with companies like Azure, Xbox, and O365/Teams in the long term,” the analyst said. 

Rangan named the following as possible outcomes of a Microsoft-TikTok acquisition:

• “While TikTok and Xbox likely have significant overlap in the user base, TikTok could help increase user engagement, especially in the younger demographic.”
• MSFT could cross sell Xbox Live services. 
• TikTok could potentially be hosted on Azure, which would drive cloud usage. 
• Possible conversion of young TikTok users to O365/Teams in the long run. 

BofA estimated that the purchase price for TikTok could range from $40-$50 billion, which “could be an issue for the stock” given that Microsoft's largest acquisition cost about $26.2 billion, when it bought LinkedIn in 2016. 

MSFT Price Action: Microsoft shares were down 2.27% at $207.66 at last check Monday.