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Is TikTok Worth The Price?

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TikTok has become one of the fastest-growing social media applications in the world today, and the Trump administration is worried that this Chinese owned enterprise knows too much about our domestic users. Washington is calling on Silicon Valley to bring this Beijing-based social media giant to the homeland.

TikTok is the most recent battleground for the Trump administration's reheating trade war with China. The Whitehouse is threatening to ban the use of this meme video app in the US if a domestic entity doesn't acquire it.

Those in the running for this forced acquisition have rotated with bids around valuation being broad-based. ByteDance is asking for $30 billion to purchase its social media behemoth, but the acquisitionists are still in negotiations, according to those familiar with the deal.

As of now, Microsoft (MSFT - Free Report) and Walmart (WMT - Free Report) are teaming up in a peculiar dual acquisition bid, while Oracle (ORCL - Free Report) is partnering with private equity investors.

Recent Hurdle

The Chinese government is not going to let TikTok go without a fight, and this was made clear on Friday when Beijing released a new constraint on exports of artificial intelligence technology. This novel restriction may include TikTok's proprietary algorithm's sale and could require a sign off from the Chinese government.

All in all, this new restriction has reduced the chances of a deal.

Value to Acquires

I have been attempting to wrap my head around the added value & synergies of this acquisition to the current bidders. Some speculate that Walmart could leverage the app for digital sales, while Microsoft and Oracle could utilize the user data.

I am skeptical about this user data's value and don't think the app would be nearly as attractive if a Walmart ad popped up every 30 seconds.

This looks like it is a play to appease the 80 million users in the US today. I think the acquirer would be in good favor with both the government and the younger population who are driving a growing portion of the economy.

Concerns

My concerns are the same as every other analyst: that TikTok will not generate sufficient long-term returns.

This application has all the makings of a fad. It is almost identical to the late Vine with its short video clips and meme-worthy trends. TikTok could die the same slow obsolescent death that Vine did if it doesn't continue to captivate its audience.

Still, TikTok is already 4 times bigger than Vine ever was, with 800 million active monthly users and over 2 billion downloads worldwide. Whether this is just fad or not remains to be seen, but I still don't see strong synergies with any of its acquires, so I would be apprehensive about buying into this acquisition.

Final Thoughts

The adamancy of TikTok's "national security threat" is subject to controversy, but there is no question that the Trump administration is fueling the fire of the trade war once again.

As of now, it looks likely that Microsoft and Walmart are likely to be the acquirers of TikTok, but what they plan to do with this meme machine remains a mystery.

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