Microsoft’s six-week deal: How much is TikTok’s U.S. business worth?

Beijing time on the morning of August 5, Microsoft has six weeks to negotiate the acquisition of TikTok’s U.S. business details. But there are still some thorny issues to solve, the most important of which is: How much is the short video sharing app worth? Analysts and bankers have set the value of TikTok’s U.S. business at $20 billion to $50 billion, a larger range that reflects the complexity of divesting TikTok’s U.S. business and global business, such as determining the number of reliable users and revenue for specific market segments of trading. Microsoft’s offer also includes TikTok’s operations in Canada, Australia and New Zealand.

Microsoft's six-week deal: How much is TikTok's U.S. business worth?

TikTok’s parent company is Chinese internet giant Byte Dance. ByteDance has a range of popular entertainment apps. Last year, Byte Dance reported total revenue of $17 billion and net profit of more than $3 billion. Based on this, ByteDance is valued at more than $100 billion in the private equity market and is one of the world’s most valuable start-ups.

But venture capital investors own shares in Byte Dance, not TikTok, so the valuation of TikTok is unclear. More crucially, since Microsoft is only considering acquiring TikTok’s business in four countries, it is necessary to further differentiate the business of TikTok. Daniel Ives, an analyst at Wedbush Securities, estimates that TikTok’s Us business could account for 40 per cent of ByteDance’s valuation, or about $40bn.

According to Evers estimates, TikTok has about 100 million active users in the U.S. and has generated about $2 billion in revenue. If all goes well, Microsoft could build On to develop TikTok into a $200 billion business. The app may be able to refer to Facebook’s path, which has chosen to go public before refining its advertising business. Although TikTok has started showing ads in-app, it hasn’t made a real profit.

Microsoft had previously confirmed in a blog post that it was in talks to acquire some of TikTok’s assets, but did not mention the potential purchase price in the article. TikTok declined to comment on its valuation.

TikTok’s global business is worth about $50 billion and the value of the U.S. business is slightly lower, according to a person familiar with the White House’s research with TikTok. Microsoft’s shares rose 5.6 percent on Monday after the deal broke, meaning the company’s market value has increased by $87 billion, more than enough to complete a deal.

Several other analysts have used rival Snapchat as the basis for TikTok’s comparison. In its latest earnings report, Snapchat’s parent company, Snap, said daily active users of the app rose 17 percent to 238 million. The company’s revenue in 2019 was $1.72 billion. One banker said TikTok should be more valuable than Snap because it has more online celebrities and more active communities. Snap has a market capitalization of about $32 billion.

TikTok’s valuation may be based on the growth rate of its users, but user growth does not tell the specifics. Research firm Sensor Tower estimates that the TikTok app has about 165 million downloads in the U.S., but bankers, analysts and VCs are still trying to figure out the gap between the number of active users on the platform and the 165 million downloads. By comparison, Snap had 161 million daily active users before it went public in 2017 and Facebook had 526 million daily active users before it went public in March 2012. According to Bloomberg analyst Jitendra Waral, each user who goes public contributes $138 to the company’s market value, while Facebook contributes $198 per user. If Facebook’s unit user contribution is classified, and TikTok is assumed to have 100m users, it would be valued at close to $20bn.

“The biggest unknown is ‘users,'” Vola said. In the U.S., TikTok’s user growth is faster than When Snap went on sale. As a result, TikTok’s valuation should be higher. “

But Microsoft has other difficulties to overcome to acquire some of TikTok’s businesses. Some hawks in the Trump administration are not optimistic about Microsoft’s acquisition of TikTok. White House adviser Peter Navarro, for example, said in an interview that Microsoft may need to divest its assets in China before buying TikTok.

TikTok’s purchase price also depends on whether Microsoft will drive down the price at the time of the acquisition. Because without a takeover, TikTok may not be able to continue operating in the United States. But at least another big company has expressed interest in buying TikTok, and other US investors are likely to buy a minority stake in TikTok. However, Microsoft is currently the only company that has publicly confirmed that it is in talks to buy. If no other suitable bidder sits on, Microsoft may have more bargaining chips. (Little White)