Update: After writing this letter, news broke this weekend that Oracle’s bid for TikTok was accepted by ByteDance, over Microsoft and Walmart. The sale still needs Federal approval, but Oracle stock is up 6% this morning on what the street is saying is positive news.
The social media craze among millennials and teens was exacerbated this year due to the COVID-19 pandemic and lockdown. We were all quarantining, and as rapper, Tyga said in his quarantine rap song, “bored in the house”, willing to accept anything to distract our attention from the nasty virus at hand. What’s better that laughing at endless videos of kids pranking their parents by making them “look” into an open water bottle only to be squirted in the face with water, or watching the same choreographed dances from people and celebrities worldwide or finding a new recipe to make for dinner? It’s easy to understand how TikTok garnered so much attention, so quickly.
As is commonly said, not all great things last forever. President Trump, in an effort to reinforce his hard stance on China, has threatened to ban the service in the United States over concerns that the Chinese government is using the app to spy & gather data on US consumers. While the jury is out on whether this is a legitimate issue, TikTok’s parent company, ByteDance, now has until September 20th to sell the unit to a US company. Microsoft initially came forward as the most likely suitor, however last week it was announced that Walmart was also going to join the bidding party in partnership. As recently as this week, ByteDance is in talks with the US Government to keep a part of the company so, this is clearly an evolving issue.
At first glance, it appears to be a bit of an odd match. Why would a big box store that sells everyday bulk goods want to buy an interest social media app with a potentially short shelf life? The rise of social commerce in China is quite amazing and something not as well exploited here in the US. Douyin is well known for linking short videos with a specific product and allowing users to purchase that product, seamlessly and efficiently in one click from your phone. Maybe Walmart has a similar idea in mind? While on the surface the idea sounds quirky, it could end up being a fantastic pivot for the company to increase sales and continue building on its recent success of transitioning to more online sales after its purchase of Jet.com in 2016 for $3.3 billion.
Walmart’s largest competitor, Amazon, made a similarly head-scratching purchase of Whole Foods in 2017. At first, that too seemed crazy. Why would an online retailer and cloud computing provider want to get into the organic grocery store business? Well, fast forward three years and one global pandemic later and everyone is trying to sign up for Amazon prime to get their groceries delivered to their doorstep. That is an example of a successful acquisition, despite a seemingly odd match. Other acquisitions do not turn out to be a match made in heaven. A perfect example of a failed match that has been in the news just this last week, is AT&T’s purchase of DirectTV in 2015 for $49 billion. This acquisition makes a bit more sense on the surface – a cell phone & cable provider buying a TV cable service. However, news broke yesterday that AT&T is now looking to sell the assets, for what is estimated around a $30 billion loss. If only they had forked over the cash for Netflix!
Not all acquisitions are made equal. Some end up being wildly successful despite the oddity of the combination and others that seem perfect fits end up being a huge flop. It is far too early to say if TikTok will even be sold given all the political hoopla surrounding this deal. Even if the deal goes through, it’s hard to say whether this will be profitable for Microsoft or Walmart. One thing is certain; It will be interesting to watch this develop as the September 20th deadline approaches. Will there be a deal or delay on the ban? Politicians do love kicking cans down the road…