over 3 years ago • 2 mins
With tech giant Microsoft in talks to purchase the US operations of video-sharing app TikTok from China’s ByteDance the obvious question is: how much might it have to pay?
Over the next few weeks, the two companies’ bankers and lawyers will be thrashing out a price for the potential transaction, which would see Microsoft take on TikTok’s operations in the US – along with the smaller markets of Canada, Australia, and New Zealand.
As anyone who’s completed our How To Value Stocks Pack will know, the most comprehensive way to put a number on a business’s worth is through a discounted cash flow model 🤓 But, sadly, SoftBank-backed ByteDance is a private company and doesn’t publish the numbers we’d need. So, instead, let’s look at some alternative ways of pondering what Microsoft’ll have to pony up.
Firstly, let’s compare the TikTok assets with two major social media rivals. Facebook has 2.36 billion users across its apps, resulting in $71 billion in revenue and a market value of $727 billion. Meanwhile, Snap, the parent company of Snapchat, has about 230 million users, brought in revenue of $1.7 billion last year, and has a market value of $31 billion.
Facebook stock trades at 9.6 times sales, while Snap’s valuation is an even-loftier 17 times.
Turning to TikTok, its US division is estimated to have 70 million users and $500 million in revenue. At a Snap-level of valuation that suggests TikTok’s US parts are worth roughly $9 billion, but at Facebook’s lower levels they’re only worth $5 billion.
Another way to look at this is to calculate the fraction of Bytedance’s overall value that’s attributable to its US operations. Roughly 70 million of TikTok’s 800 million global users are in the US. Add in Douyin and Toutiao, ByteDance’s Chinese-language apps, and the total is above 1.5 billion users.
ByteDance is currently valued at about $110 billion in private markets, according to Bloomberg. So, assuming users are worth the same no matter where they live, then we again get a valuation of just over $5 billion for the US operations.
For a company the size of Microsoft, with $44 billion in annual profits to play with, buying TikTok’s US unit would be a relatively small bet. After all, it paid nearly $8 billion back in 2013 for Finnish cell phone maker Nokia and a record $26 billion for LinkedIn in 2016.
If Microsoft does manage to seal this deal for about $5 billion then it may arguably be getting a bargain: a fast-growing company that’s valued as “cheaply” as well established Facebook.
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