The Race to Save TikTok
We heard last week that President Trump was on the verge of demanding Chinese ByteDance divest its TikTok operations in the United States (this means fire sell TikTok and get the hell out).
This prompted frenzied trading on Wall Street, as tech giants received a sort-of executive order to make TikTok a part of their long-term plans. Microsoft made the first move and started talks with ByteDance. We don’t know its bid, but TikTok is valued at $20-30 billion!
If Microsoft seals a deal, it’s a social media giant (wow!), but Facebook would consider it a backstab. Mark Zuckerberg was on Capitol Hill just last week getting scolded for acquiring Instagram and WhatsApp; his hands are tied; he can’t bid; but close partner Microsoft is taking advantage to become a direct competitor? It might not matter is TikTok goes the way of Skype!
You need to short the tech giant you think will win the deal. I know, that sounds counterintuitive, but the acquirer is parting with a huge sum of safe cash to take on a risk asset. The deal might still be great long-term, but markets have no choice but to value the stock lower in the short-term.
If you want to hedge this trade, you can short the tech giants who fail to get TikTok’s US wing on their side. The most fundamental thing which affects a company long-term is competition, and TikTok is a strategic asset that could redefine the competitive landscape in social media.
The other option in the event tree is that no one acquires TikTok because President Trump decides to ban it in all forms. This will depend on whether he’s in a diplomatic mood. Reuters reports he’s given Microsoft and ByteDance a mid-September deadline to agree terms. That looks like the deal!
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.