What Buying TikTok Could Mean For Microsoft

Microsoft Corporation 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.