TikTok’s potential $588 per user valuation in Microsoft deal
4thquadrant.io
4thquadrant.io
The analysis in the article is like looking at Tesla on an earnings per share basis, when it's actually heavily priced on forward projected earning potential.
Like Tesla, Tiktok is a growth stock. This valuation doesn't reflect its current value per user - it's baking in an implied doubling or trebling of its user base in some short time span.
I'm not saying that the assumption that Tiktok will meet its projections (and justify this valuation) is warranted, but I am saying that comparing Tiktok's $/user to Facebook, a mature/somewhat stagnant social network, is the wrong way to look at this.
They go on to acknowledge the growth profile and valuation multiples vs competitors based off projected profits ...which is probably the more useful way to look at it -
There have been reports of investors valuing TikTok around $50 billion in the takeover bid, this is approximately 50 times its projected revenue for 2020. Many publications have compared this to SnapChat’s market capitalization which sits around $33 billion at the moment (15 times its 2020 projected revenue). While Snapchat exists within the same social media ecosystem the comparison has to account for two factors.
1) TikTok vs Snapchat’s position in the growth cycle 2) TikTok vs Snapchat’s core proposition
Microsoft has done enterprise so well for so long but has always struggled on 'consumer tech' outside of its Windows OS. Acquiring a social media platform is going to catapault it into the heart of consumer tech.
Question is will TikTok be a parallell arm or will it help Microsoft's consumer tech ambitions for One Drive, Xbox etc?
Xbox was always consumer and is massive. A huge chunk of the Windows line was always about consumers. The office line straddled both. Hotmail was consumer first.
MS has what I call the 6 versions rule. v1 do not get, v2 interesting toy, v3 hey kinda usable, v4 get this thing it is cool, v5 they manage to mess it up badly, v6 just kinda put that back but not quite. They then toggle between v5 and v6.
Even with Windows, which is their most successful consumer product, its success can arguably be attributed to the fact that Microsoft essentially has a 100% market dominance on computers sold under $1,000. Would that product be as successful if it faced competent competition? We really can't say for certain.
Office has historically seen consumer success (however I suspect the rise of G Suite has significantly curtailed that), but that's only because Office has been a necessity if you want to interact with business documents (which are typically .docx and MS Office files).
The common theme here is that, with the exception of Xbox, Microsoft's consumer products only seem to see success when consumers have no other options.
What consumer successes has Microsoft had recently other than Surface?
It will catapault one of their subsidiaries into the heart of that.
Remember they used to 'own the world' through IE, very much a consumer product, and that didn't shape them.
They own Skype, one of the world's most prominent p2p communication tools, and screwed that up.
He's been given far too much credit for being a 'nice guy' whilst most operationalising the foundations left for him. He has not done anything fundamental for the company, other than changed the tone of the leadership of the company. He's a good steward.
TikTok is completely out of MS cultural reach, and in that way it's a poor fit. Remember Skype? How about IE that ruled the world and MS couldn't figure it out either.
To boot, TikTok is a fad. It's just a bigger vine, and teenager will quickly move on to something more substantial over time.
FB is truly a social network and has a degree of lock-in and therefore staying power, but younger people have largely fled it as well. Snapchat and Twitter both have baseline utility for communicating.
I'm not sure TikTok is any of that - it has the faddish appeal, but none of the underlying utility.
I suspect, what will happen with TikTok is they will migrate the company over completely to Windows/Azure products internally, so that it's funneling a good deal of money back to the mothership, then spin it off into a stand-alone company. They'll make a decent profit off this.
This isn't MS's typical strategy, but it's not unheard of either. Since TT doesn't really compete with any of MS's core segments, but it also doesn't compliment any of them, I think this is the most likely scenario.
TikTok is much closer to a video playback/sharing platform (somewhere between YouTube and Vine) than a social communication platform. Direct messaging isn't even enabled by default, and even in direct messaging you're very limited in what you can send. You can't even send images unless they're already in the TikTok universe.
It just doesn't seem to be any more of a social network than YouTube is. I can perhaps see some possible value in Microsoft acquiring a fulsome social network of some kind, but a faddish YouTube-like platform? It's baffling.
It certainly has the danger of being like Bayer's acquisition of Monsanto and all the Roundup liability.
TikTok is facing many privacy lawsuits including the same Illinois biometric law problem that Facebook is currently trying to resolve. You'll remember that Facebook attempted a $550 million settlement, but the judge rejected it as being far too little. So now it is $650 million and as far as I've heard the judge has yet to accept or reject it. Facebook has admitted that this lawsuit could potentially cost them up to $45 billion if it goes to a jury.
I've seen commentary that TikTok will try to resolve all the lawsuits quickly so it can be acquired. But Facebook has been trying to settle their lawsuit for 6 months or more, and TikTok doesn't have that kind of time.
There are many out there that certainly must have far more insight into this than me, but I am definitely skeptical about this idea.
I think facebook would pay a hefty premium even above that; handing Microsoft a buzzing social media platform on a silver platter - with the weight of Microsoft's resources behind it. Surely Zuckerberg's nightmare manifest...and he has no real chance of trying to outbid - what with all the anti-trust press.
So, sure there is value, but feet to the ground
So, are there multiple suitors? If so, who? Facebook and Google probably are out because of fear the sale will be disallowed because of their market dominance.
Facebook okay, Google is not even a player in social networking unless you are referring to YouTube, since it is a video platform.
But I feel, fear of competition laws is not the major delimiter in the whole Tik-Tok sale fiasco; This is state initiated after all.
But from a consumer perspective, Please no. We don't need brain numbing, limited attention content flooding the YouTube, it's not like there are no such content already. Artificially prolonged > 10mins content for Ads are the ones featured by YT algorithm, but there are certain gems who make videos purely for telling the world about what they are making in <5 mins videos.
Except that's not Google's doing. YouTube does have an auto-placement option for mid-roll ads, but if you see more than 5 ad breaks, that's usually the uploader's own manual placement. In fact, if the ad placement seems natural, that's probably the uploader's own doing as well, as the auto-placement function is very inconsistent in recognizing good spots to insert ads.
I do believe its an absurd price though, Facebook is around $288 per user vs $588 here. If a platform that is very good at making money from Millenials, Gen X and even Boomers (all of these generations are established in their careers, and have far more money than Gen Z) is $288 per user how is this ever going to pay off?
Also, the 85m users of TikTok considered here are all U.S. users, who on average must be (potentially) more valuable than the average Facebook user.