Popular Chinese-owned video-sharing app, TikTok, made headlines following the Trump administration’s threat to ban the app from the U.S. The truth of the matter is President Trump is concerned that China might take advantage of consumers’ data to potentially follow and blackmail government employees. So, either a U.S.-based company must buy TikTok’s U.S. operations by September 15 or President Trump will permanently ban it.
Since the app’s U.S. operations went up for grabs, three companies are now fighting for it: Twitter (TWTR), Oracle (ORCL) and Microsoft (MSFT).
The reality is Twitter wants to continue growing its already massive social media presence. As of July, the company has 62.55 million users in the U.S. alone. TikTok has about 85 million users in the U.S. So, this would be a huge boon for Twitter. However, the company does not have the cash to finance the deal, so odds of a buyout are unlikely right now.
As for Oracle, buying TikTok is not so much a social media play as it is a cloud play. Keep in mind that Oracle’s cloud computing infrastructure and software is used in a variety of industries, ranging from finance to engineering to retail and much, much more. It even has its hands in artificial intelligence (AI) and 5G!
Zoom Video Communications (ZM) already partnered with Oracle as its cloud infrastructure provider, and TikTok would increase Oracle’s user base even more. Constellation Research analyst, Holger Mueller, believes that Oracle viral loads usage could increase up to 10%.
Similar to Oracle, TikTok would also be good for Microsoft’s cloud computing business, which has seen massive growth in the last quarter. For its fourth quarter in fiscal year 2020, the company noted that it saw an increase in cloud demand and usage, as more folks have been working remotely throughout the pandemic.
In fact, its commercial cloud broke $50 billion in annual revenue. Microsoft’s gaming business also saw a nice boost, with its Xbox content and services rising 65%.
Microsoft’s Teams app, which creates a platform for employees to chat and host video calls, also gave the company’s operating expenses a big push – up 10% to $407 million. This growth clearly made Slack (WORK), which views MSFT as its biggest competitor, a little nervous.
Last month, Slack management filed an antitrust complaint with the European Union (EU), as they believe Microsoft is violating competition laws by bundling Teams into its Microsoft Office platform. Time will tell where this lawsuit goes, but I’m not concerned right now.
Overall, fourth-quarter revenue rose 13% year-over-year to $38.03 billion, which topped analysts’ estimates for $36.5 billion. Fourth-quarter earnings increased 6.6% year-over-year to $1.46 per share, up from $1.37 per share in the same quarter a year ago. Analysts were expecting earnings of $1.37 per share, so Microsoft posted a 6.6% earnings surprise.
For fiscal year 2020, Microsoft reported earnings of $5.76 per share and revenue of $143.02 billion. That compares to earnings of $4.75 per share and revenue of $125.84 billion in fiscal year 2019. The analyst community was expecting full-year earnings of $5.68 per share on $141.5 billion in revenue.
Interestingly, TWTR, ORCL and MSFT rose after announcing their interest in TikTok. So that bodes well for whichever company wins out.
As of now, President Trump has thrown his support behind Oracle, so we’ll see if that impacts the fight for TikTok’s U.S. operations. At the very least, this bidding war will drive up TikTok’s sale price.
Regardless, Microsoft will be just fine with or without TikTok. It’s why it remains A-rated in my Portfolio Grader and is a holding in my Growth Investor service, where it’s up about 32% since my initial recommendation in February 2020.
In the coming weeks, I look for MSFT, as well my other Growth Investor stocks, to soar during a huge new stock market event that could drive the Dow to 200,000 in the next few years.
I am calling this phenomenon Foreshock, and I explain everything in detail in my special Financial Foreshock Summit, which you can watch here.
There is an incredible bull market rally coming and you don’t want to miss out. My Growth Investor stocks are perfectly positioned to benefit from it. If you want to, too, then I recommend you click here for all the details on how to get started.
Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owned the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Microsoft (MSFT), Zoom Video Communications (ZM)