Twitter Inc. has reportedly held preliminary talks to buy the US operations of the video-sharing app TikTok, which the Trump administration has declared a national-security threat due to its Chinese ownership.
It is unclear whether Twitter (TWTR) will pursue a deal with TikTok’s Beijing-based owner ByteDance Ltd., which would face significant challenges, the Wall Street Journal reported.
Microsoft Corp. (MSFT), which last Sunday said that it is prepared to continue negotiations to buy TikTok’s US operations after talking to President Trump, is considered the front-runner for any possible deal. Twitter is seen as a long-shot bidder, given that it is much smaller than Microsoft and would have a harder time paying for the deal – and the software giant is further advanced in negotiations.
President Trump set a Sept. 15 deadline for TikTok to find a buyer for its US operations by or face a ban. On Thursday, the White House issued an executive order that would bar people in the US from transactions with ByteDance.
It is not clear what the valuation of TikTok’s US operations would be, but estimates run into the tens of billions of dollars, which raises questions about how Twitter would finance any deal. Twitter’s market capitalization is about $29 billion and Microsoft’s is more than $1.6 trillion.
Because of its smaller size, Twitter believes it would be unlikely to face the same level of antitrust scrutiny as Microsoft or other potential bidders.
Twitter would most probably need help from other investors if it does buy TikTok. The company has far less financial firepower than other major tech players, though it does have high-powered investors such as private-equity firm Silver Lake. Unlike Microsoft, Twitter does not operate in China. China blocked access to Twitter in 2009.
If a deal does ultimately come together, it would reshape Twitter. A deal could help jumpstart a social-media company that has struggled to find its footing despite widespread use of its main platform. Although Twitter allows users to upload videos, the app’s focus is on short messages of text and images.
Trump is Twitter’s most high-profile user, but he has lately criticized the company for labeling or restricting some of his posts that it says violate its policies. Such moves have fueled the president’s claim that Silicon Valley tech firms are biased against him.
Twitter shares fell 1.5% to $37.14 at the close on Friday taking the year-to-date advance to 16%. (See Twitter stock analysis on TipRanks).
Five-star analyst John Egbert at Stifel Nicolaus maintained a Hold rating on the stock with a $33 price target (11% downside potential), citing “negative risk / reward in the short-term due to structural challenges within Twitter’s ad business (exposure to brand advertisers / live events, potential headwinds from Apple’s upcoming IDFA changes in iOS 14 on MAP campaigns).”
In addition, Egbert sees the “likelihood of investigations into the company’s data security and privacy practices being an overhang for several quarters”.
The rest of the Street shares Egbert’s outlook on the stock. The Hold analyst consensus shows 23 Holds and 1 Sell versus 6 Buys. The $38.33 average price target implies 3% upside potential in the shares the coming 12 months.
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