Why a Top Analyst Sees Microsoft Winning Big With TikTok

Technology

Published: August 27, 2020 12:47 pm

Last Updated: August 27, 2020 2:32 pm

Microsoft Corp. (NASDAQ: MSFT) has been one of the biggest winners throughout the pandemic, and now this tech giant is poised for another big victory. The sale of TikTok has been highly contested, and Microsoft may have gained an edge in this fight, or at least one analyst thinks so.

Wedbush’s Daniel Ives reiterated an Outperform rating for Microsoft with a $260 price target, implying a 17.6% upside from the most recent closing price of $221.15.

A recent report cited that Microsoft may be partnering with Walmart for the purchase of TikTok. Walmart issued a statement saying, “We are confident that a Walmart and Microsoft partnership would meet both the expectations of US TikTok users while satisfying the concerns of US government regulators.”

According to Wedbush, this partnership could be the final piece of the puzzle that ultimately cements Microsoft successfully acquiring TikTok’s US operations for likely $35 billion to $40 billion.

The boutique brokerage firm describes Microsoft as a “White Knight” in the report. Wedbush continues:

While deal negotiations will be complex with a number of technology and data privacy issues that need to be worked out (national security concerns to be met between Chinese and US data) before an agreement is inked, we believe ByteDance is playing a game of high stakes poker with Microsoft looking like the only true white knight around. With other FAANG tech stalwarts currently up to their eyeballs in regulatory swirls, Redmond (not Oracle) is the only US technology stalwart with the treasure chest, infrastructure, and distribution to get a deal like this done in our opinion, as financial buyers (PE, etc.) or social media players like Twitter are not viable options given this complex Rubik’s Cube political backdrop and high price tag.

Ultimately, Wedbush believes Microsoft buying TikTok would be like Christmas morning coming early for investors, especially at a valuation in the range of $35 billion to $40 billion. Note that this price range could be lower depending on negotiations, but a few years down the line this could be worth $200 billion.

Microsoft stock traded up about 3% to $227.45 on Thursday, in a 52-week range of $132.52 to $231.15. The consensus price target is $226.93.