Microsoft + TikTok = No Freaking Way
By Scott Galloway:
CNN: “Section4, the online education start-up founded by NYU professor Scott Galloway, is in discussions to acquire TikTok.”
It. Could. Happen.
Hey, why not? The probability that Section4 will absorb the social platform is only slightly less likely than Microsoft (MSFT) or Twitter (TWTR), or anybody else acquiring it. Expect several other investor relations departments to leak to the WSJ/NYT that they are in discussions to acquire TikTok, as it’s easier to create billions in value by calling the WSJ and going on background than by, you know, actually creating value.
Microsoft added Boeing (BA) to its market cap ($95 billion) on the notion that the fastest-growing social platform in the world would be served up on a platter, under the specter of a national ban yielding Satya yuge leverage. After immigrating to the US on a student visa and putting himself in a place to shepherd the creation of hundreds of billions in shareholder value, being asked by a failed, silver-spoon bigot impersonating the chair of Microsoft’s board likely inspires one emotion in Mr. Nadella: the need to shower. The president telling Satya to acquire TikTok is similar to Joel Glazer calling Tom Brady from a Florida day spa and demanding he pass the ball more to Gronkowski. Yeah, thanks for the call.
Twitter’s stock rose 5% after news broke of its interest in the app, though shares closed lower as the market likely realized that Twitter doesn’t have the balance sheet or the leadership for a merger of this size. Initially, I loved this idea. Twitter needs a CEO, growth, and product innovation, and the Chinese would, in a man-bites-dog scenario, be effectively acquiring Twitter — they would own the majority of the shares in newco. Kind of a jiu-jitsu SPAC inversion kind of thing.
For a hot minute, I convinced myself Disney (DIS) should acquire TikTok — US-Sino chops, the balance sheet, an ability to acquire and scale media, and a need to diversify from movie theaters and parks. However, the crowd’s wisdom reminded me they are still digesting 20th Century Fox, and likely can’t stomach the toxicity that is social media. Regardless, Disney should leak the rumor and use the additional $15 billion in market cap to acquire Viacom (VIAC), as they need more vertical distribution. But I digress.
Yoga & Boxing
When I moved to NYC I was bored and depressed. I found stretching and hitting helped, and began practicing yoga and boxing. I would beat the sh*t out of that speed bag. My boxing trainer, Anthony, convinced me I had a “gift” as a pugilist. I knew he was lying, but that didn’t stop me from believing him. We decided I should participate in their quarterly boxing tournament.
A. Great. Idea.
I had been training like a maniac and felt good, confident even. So, in April 2004, Scott “Prof G” Galloway entered the ring. I was 6’2”, 188, and my opponent was 5’8”, 191. Facing each other, in the center of the ring, it looked as if Ichabod Crane was about to get it on with Mike Tyson’s big brother. No problem, I've got this… Anthony said I have a gift. My freakishly long arms would keep the elder Iron Mike at bay. The bell rang, and my first thought was how bright it was.
The brightness was a function of my being flat on my back just after the bell rang, approximately 17 seconds that I don’t remember and will never get back, and the temporary loss of function in the orbicularis oculi muscle and my facial nerve — the pathway that controls blinking. Sixteen years later, my nose still veers to the right. In sum, the most common mistake in strategy is believing your competitor/opponent is a speed bag and doesn’t observe, calculate, and hit back.
How Apple Could Lose 40% and the Nasdaq 20% in 7 days
What if CNN were to announce next week: President Xi Jinping said, “We believe consumers are using the iPhone to circumvent Chinese security protocols. We have informed Apple (AAPL) that it must sell its operations in China, including all factories and supply chain operations, to a Chinese firm within 45 days.”
Seventeen percent of Apple’s revenue comes from China. The world’s most robust supply chain, belonging to the world’s most valuable company, would be effectively disemboweled. The Chinese are more measured and disciplined than our administration, and will likely point their fire lance at smaller prey, like Starbucks (SBUX) or Qualcomm (QCOM).
Swing State TikTok
Trump’s ban would also piss off 21 million TikTok users in 10 key swing states: Florida, Pennsylvania, Michigan, Wisconsin, Minnesota, New Hampshire, North Carolina, Maine, Arizona, and Ohio. Granted, most TikTok users (young people) don’t vote, but it would cement that whole “OK obese boomer” thing, which is never a good look, in anything.
Hard Thing About the Hard Things
Getting TikTok off Americans’ phones can be done easily, since the app store market is a duopoly, Apple and Google (GOOG) (GOOGL).
But the legal implications are much more complex. James Lewis, director of technology policy at the Center for Strategic and International Studies, said putting TikTok on the (banned) “entity list” would be extreme, unusual, and legally dubious. “They could sanction them, but usually the sanction is tied to trade violations or espionage or proliferation or intellectual property theft. You can’t just do it because you’re mad at a company.” The administration doesn’t need congressional approval to ban an entity, but it sets a dangerous precedent to do so without clear and extensive justification of wrongdoing, seemingly on a whim or as a personal bargaining chip.
US companies banned in China:
- Facebook, Instagram, Whatsapp
- Google (YouTube, Gmail, Google Play, Google Maps, Google Drive, Hangouts, Blogger)
So, what happens?
- Xi tells TikTok management and bankers to channel their inner Sheryl Sandberg: act sincere about doing something (selling) and do nothing.
- Trump announces he and Xi, due to his awesome negotiating skills, had productive talks, and he’s decided to delay the deadline for banning TikTok.
- Once we’re 50 days out from the election (9/13), a ban of TikTok will seem weak/weird.
- 11/3, a nation starts to count mail-in and in-person ballots.
- 11/4, Sarah Cooper’s impersonations go into decline, Maya Rudolph’s career finds new life.
- 11/5 on … Charli D’Amelio.
If you believe the Chinese will be bullied into selling a global internet asset on the cheap, you should take up boxing.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
See also Wall Street Breakfast: What Moved Markets on seekingalpha.com
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.