I can't believe I'm the first to point this out, but this article is kind of obviously wrong.
The analysis in the article is like looking at Tesla on an earnings per share basis, when it's actually heavily priced on forward projected earning potential.
Like Tesla, Tiktok is a growth stock. This valuation doesn't reflect its current value per user - it's baking in an implied doubling or trebling of its user base in some short time span.
I'm not saying that the assumption that Tiktok will meet its projections (and justify this valuation) is warranted, but I am saying that comparing Tiktok's $/user to Facebook, a mature/somewhat stagnant social network, is the wrong way to look at this.
seven4 1344 days ago [-]
True... though "588/user" is more digestable than "588/current user but likely accounting for future growth which is why there is a premium - though we can't be sure that userbase does continue to grow considering the cloud of uncertainty around this deal and that the user base is largely gen z/particularly young and it is not proven that they will be sticky"
They go on to acknowledge the growth profile and valuation multiples vs competitors based off projected profits ...which is probably the more useful way to look at it -
There have been reports of investors valuing TikTok around $50 billion in the takeover bid, this is approximately 50 times its projected revenue for 2020. Many publications have compared this to SnapChat’s market capitalization which sits around $33 billion at the moment (15 times its 2020 projected revenue). While Snapchat exists within the same social media ecosystem the comparison has to account for two factors.
1) TikTok vs Snapchat’s position in the growth cycle
2) TikTok vs Snapchat’s core proposition
Haha I saw that after I refreshed the page! You beat me to hitting post by a couple of minutes, because I wrote a longer post than you did :)
panarky 1344 days ago [-]
Assuming the 800 million user base trebles, is $196 per potential future user a reasonable valuation?
rasz 1344 days ago [-]
I mean its not even close to broadcast.com $10,000 per user, and that one turned out great!
dasudasu 1344 days ago [-]
Could anyone in the 90s and early 00s have imagined that the internet would end up being one big competition for who can monitor and track their users best, just to run the most efficient ads, and that this value would be in the hundreds of dollars per user?
soared 1344 days ago [-]
That’s not even a good take. Clearly it’s not one big competition for that - you’re on HN right now which is not competing.
simplertms 1344 days ago [-]
The most interesting thing about this deal outside the obvious political drama in my opinion is that this will change Big Tech landscape overnight.
Microsoft has done enterprise so well for so long but has always struggled on 'consumer tech' outside of its Windows OS. Acquiring a social media platform is going to catapault it into the heart of consumer tech.
Question is will TikTok be a parallell arm or will it help Microsoft's consumer tech ambitions for One Drive, Xbox etc?
jjirsa 1344 days ago [-]
Who created this lie that Microsoft struggled with consumer?
Xbox was always consumer and is massive.
A huge chunk of the Windows line was always about consumers.
The office line straddled both.
Hotmail was consumer first.
spideymans 1344 days ago [-]
Not a lie. Any modern-day "success" with consumers from Microsoft has been limited to them riding the coattails of the well-established and decades old Xbox and Windows platforms. Every other Microsoft foray into consumer computing since Xbox has largely flopped (Windows Phone, Windows tablets, Zune, smartwatches, wearables, Skype, Bing, Cortana, etc...)
Even with Windows, which is their most successful consumer product, its success can arguably be attributed to the fact that Microsoft essentially has a 100% market dominance on computers sold under $1,000. Would that product be as successful if it faced competent competition? We really can't say for certain.
Office has historically seen consumer success (however I suspect the rise of G Suite has significantly curtailed that), but that's only because Office has been a necessity if you want to interact with business documents (which are typically .docx and MS Office files).
The common theme here is that, with the exception of Xbox, Microsoft's consumer products only seem to see success when consumers have no other options.
mastax 1344 days ago [-]
Zune, Skype, Windows Phone, Kin, Xbox under Don Mattrick, Windows Store, Microsoft Store, Mixer, Band.
What consumer successes has Microsoft had recently other than Surface?
sumtechguy 1344 days ago [-]
xbox at first was so bad they buried it in another division that was very profitable. I remember reading it in their prospectus when I owned some of their stock at that time. xbox now is only 'good' because sony made the ps3 which was a cool box but expensive to buy, use and produce on.
MS has what I call the 6 versions rule. v1 do not get, v2 interesting toy, v3 hey kinda usable, v4 get this thing it is cool, v5 they manage to mess it up badly, v6 just kinda put that back but not quite. They then toggle between v5 and v6.
katbyte 1344 days ago [-]
Xbox got lucky with the ps3, and is now struggling to remain relevant with the ps4/5 in my opinion and friend circles.
rasz 1344 days ago [-]
Xbox still to this day is a net negative. Whole division has never turned profit if you consider investments. Lets not forget Xbox One launch fiasco with always online DRM, emphasis on TV services, no game resale. That cost them ~25% market share. https://www.vgchartz.com/article/442352/switch-vs-ps4-vs-xbo...
TheAdamAndChe 1344 days ago [-]
There's a chance that they could just make it crash and burn. Mixer was a live streaming platform like Twitch that was owned by Microsoft. Technologically, it was superior to twitch, but design decisions affecting moderation, rules, and culture prevented it from gaining traction. There's a chance that a shift in culture could kill TikTok too.
jariel 1344 days ago [-]
" Acquiring a social media platform is going to catapault it into the heart of consumer tech."
It will catapault one of their subsidiaries into the heart of that.
Remember they used to 'own the world' through IE, very much a consumer product, and that didn't shape them.
They own Skype, one of the world's most prominent p2p communication tools, and screwed that up.
jariel 1344 days ago [-]
This will be Nadella's Albatross.
He's been given far too much credit for being a 'nice guy' whilst most operationalising the foundations left for him. He has not done anything fundamental for the company, other than changed the tone of the leadership of the company. He's a good steward.
TikTok is completely out of MS cultural reach, and in that way it's a poor fit. Remember Skype? How about IE that ruled the world and MS couldn't figure it out either.
To boot, TikTok is a fad. It's just a bigger vine, and teenager will quickly move on to something more substantial over time.
FB is truly a social network and has a degree of lock-in and therefore staying power, but younger people have largely fled it as well. Snapchat and Twitter both have baseline utility for communicating.
I'm not sure TikTok is any of that - it has the faddish appeal, but none of the underlying utility.
AlanYx 1344 days ago [-]
Amen. I don't even really understand why most of the commentary surrounding this potential acquisition refers to TikTok as a social network.
TikTok is much closer to a video playback/sharing platform (somewhere between YouTube and Vine) than a social communication platform. Direct messaging isn't even enabled by default, and even in direct messaging you're very limited in what you can send. You can't even send images unless they're already in the TikTok universe.
It just doesn't seem to be any more of a social network than YouTube is. I can perhaps see some possible value in Microsoft acquiring a fulsome social network of some kind, but a faddish YouTube-like platform? It's baffling.
OldHand2018 1344 days ago [-]
> This will be Nadella's Albatross.
It certainly has the danger of being like Bayer's acquisition of Monsanto and all the Roundup liability.
TikTok is facing many privacy lawsuits including the same Illinois biometric law problem that Facebook is currently trying to resolve. You'll remember that Facebook attempted a $550 million settlement, but the judge rejected it as being far too little. So now it is $650 million and as far as I've heard the judge has yet to accept or reject it. Facebook has admitted that this lawsuit could potentially cost them up to $45 billion if it goes to a jury.
I've seen commentary that TikTok will try to resolve all the lawsuits quickly so it can be acquired. But Facebook has been trying to settle their lawsuit for 6 months or more, and TikTok doesn't have that kind of time.
There are many out there that certainly must have far more insight into this than me, but I am definitely skeptical about this idea.
mywittyname 1344 days ago [-]
I'd argue Microsoft does not need a shakeup right now. Much like with Tim Cook & Apple, keeping things humming along nicely is all they need to print lots of cash for the foreseeable future.
I suspect, what will happen with TikTok is they will migrate the company over completely to Windows/Azure products internally, so that it's funneling a good deal of money back to the mothership, then spin it off into a stand-alone company. They'll make a decent profit off this.
This isn't MS's typical strategy, but it's not unheard of either. Since TT doesn't really compete with any of MS's core segments, but it also doesn't compliment any of them, I think this is the most likely scenario.
seven4 1344 days ago [-]
“At a market cap of $755 billion (at point of writing) Facebook’s per user value is around $288. If Facebook is some leading indicator for the pinnacle of per user value for social media, then at $50 billion for the roughly 85 million American users, TikTok’s per user value would be $588.”
I think facebook would pay a hefty premium even above that; handing Microsoft a buzzing social media platform on a silver platter - with the weight of Microsoft's resources behind it. Surely Zuckerberg's nightmare manifest...and he has no real chance of trying to outbid - what with all the anti-trust press.
rtx 1344 days ago [-]
I would have preferred if Facebook bought TikTok. It would have been easier to run ads.
robjan 1344 days ago [-]
Microsoft are one of Facebook's investors, although a relatively small one.
seven4 1344 days ago [-]
Yeah, i guess full ownership gives them all the upside/control/ability to integrate with their other projects/ambitions.
onetimemanytime 1344 days ago [-]
The value is in "it will be the next FB". But we already have a FB and plenty of other existing social apps. They will not go down with a whimper and they will clone features, advertise etc etc. Plus, there's a limit on how many socials a person can really use.
So, sure there is value, but feet to the ground
Someone 1344 days ago [-]
I think the valuation depends on there being multiple buyers because, if Bytedance doesn’t sell, they’ll lose those valuable customers.
So, are there multiple suitors? If so, who? Facebook and Google probably are out because of fear the sale will be disallowed because of their market dominance.
Abishek_Muthian 1344 days ago [-]
>Facebook and Google probably are out because of fear the sale will be disallowed because of their market dominance.
Facebook okay, Google is not even a player in social networking unless you are referring to YouTube, since it is a video platform.
But I feel, fear of competition laws is not the major delimiter in the whole Tik-Tok sale fiasco; This is state initiated after all.
tiborsaas 1344 days ago [-]
YouTube is huge social network but nobody refers to like it, but it has all of its characteristics.
seven4 1344 days ago [-]
hmm you're right. I wonder why that is...maybe the percentage skew of content creators to consumers..I'm sure there's more to it too
oefrha 1344 days ago [-]
Player or not I hope YouTube take a page from TikTok. Their recommendation algorithm is abysmal (my opinion of course, and the opinion of many people I've talked to; anecdata, but given that I've never heard anyone saying they're hooked on YouTube recommendations, while I've heard tons of people hooked on TikTok's, I'd say there's at least some truth in this claim) and hasn't seemed to improve at all for the past, I don't know, five years? And they seem to only care about pushing their subscription increasingly more aggressively, while shoving more mid-roll ads into non-subscribers' streams (these days there are sometimes ten ad breaks in a twenty-minute video, think about it). Sad really.
Abishek_Muthian 1344 days ago [-]
From business perspective, yes. It's not like YouTube doesn't know how to do it, it started as a creator focussed platform where people did silly things with their camcorder.
But from a consumer perspective, Please no. We don't need brain numbing, limited attention content flooding the YouTube, it's not like there are no such content already. Artificially prolonged > 10mins content for Ads are the ones featured by YT algorithm, but there are certain gems who make videos purely for telling the world about what they are making in <5 mins videos.
michaelmior 1344 days ago [-]
I think part of what makes TikTok recommendations addictive is that since the content is so short, it's harder to get fatigued by bad recommendations. If I get recommended just a couple bad YouTube videos that are several minutes long even if I abandon partway through, it's easier to give up.
simion314 1344 days ago [-]
YT recommendations are just dumb, I was listening a music video and it always recommended me some song I disliked, so I hit dislike on the video but YT ignored it. I have no idea why the AI would recommend that video, it was not same genre of music maybe the visuals were similar so maybe their algorithm is biased for visuals and not for genre/content.
saltminer 1344 days ago [-]
>while shoving more mid-roll ads into non-subscribers' streams (these days there are sometimes ten ad breaks in a twenty-minute video, think about it)
Except that's not Google's doing. YouTube does have an auto-placement option for mid-roll ads, but if you see more than 5 ad breaks, that's usually the uploader's own manual placement. In fact, if the ad placement seems natural, that's probably the uploader's own doing as well, as the auto-placement function is very inconsistent in recognizing good spots to insert ads.
rasz 1344 days ago [-]
Amazon rather curiously banned tiktok just to quickly walk that back, maybe the case of one hand not talking to the other.
afrojack123 1344 days ago [-]
Where can we bet against this. The prices are unbelievable.
ergwwrt 1344 days ago [-]
2 people become $1200. 3 people $2100..
1344 days ago [-]
downrightmike 1344 days ago [-]
Seriously, how the hell was this deal handed, gift wrapped to Microsoft? There are better suitors.
bearjaws 1344 days ago [-]
The only thing is, TikTok will be an amazing advertising platform for the up and coming Gen Z.
I do believe its an absurd price though, Facebook is around $288 per user vs $588 here. If a platform that is very good at making money from Millenials, Gen X and even Boomers (all of these generations are established in their careers, and have far more money than Gen Z) is $288 per user how is this ever going to pay off?
oefrha 1344 days ago [-]
I guess one thing to consider is that Facebook MAU is declining while TikTok is on the growth track.
Also, the 85m users of TikTok considered here are all U.S. users, who on average must be (potentially) more valuable than the average Facebook user.
missedthecue 1344 days ago [-]
Facebook MAU grew from 2.3B to 2.6B monthly active users between 2019 and 2020. What do you mean by 'declining'?
The analysis in the article is like looking at Tesla on an earnings per share basis, when it's actually heavily priced on forward projected earning potential.
Like Tesla, Tiktok is a growth stock. This valuation doesn't reflect its current value per user - it's baking in an implied doubling or trebling of its user base in some short time span.
I'm not saying that the assumption that Tiktok will meet its projections (and justify this valuation) is warranted, but I am saying that comparing Tiktok's $/user to Facebook, a mature/somewhat stagnant social network, is the wrong way to look at this.
They go on to acknowledge the growth profile and valuation multiples vs competitors based off projected profits ...which is probably the more useful way to look at it -
There have been reports of investors valuing TikTok around $50 billion in the takeover bid, this is approximately 50 times its projected revenue for 2020. Many publications have compared this to SnapChat’s market capitalization which sits around $33 billion at the moment (15 times its 2020 projected revenue). While Snapchat exists within the same social media ecosystem the comparison has to account for two factors.
1) TikTok vs Snapchat’s position in the growth cycle 2) TikTok vs Snapchat’s core proposition
https://news.ycombinator.com/item?id=24081449
Microsoft has done enterprise so well for so long but has always struggled on 'consumer tech' outside of its Windows OS. Acquiring a social media platform is going to catapault it into the heart of consumer tech.
Question is will TikTok be a parallell arm or will it help Microsoft's consumer tech ambitions for One Drive, Xbox etc?
Xbox was always consumer and is massive. A huge chunk of the Windows line was always about consumers. The office line straddled both. Hotmail was consumer first.
Even with Windows, which is their most successful consumer product, its success can arguably be attributed to the fact that Microsoft essentially has a 100% market dominance on computers sold under $1,000. Would that product be as successful if it faced competent competition? We really can't say for certain.
Office has historically seen consumer success (however I suspect the rise of G Suite has significantly curtailed that), but that's only because Office has been a necessity if you want to interact with business documents (which are typically .docx and MS Office files).
The common theme here is that, with the exception of Xbox, Microsoft's consumer products only seem to see success when consumers have no other options.
What consumer successes has Microsoft had recently other than Surface?
MS has what I call the 6 versions rule. v1 do not get, v2 interesting toy, v3 hey kinda usable, v4 get this thing it is cool, v5 they manage to mess it up badly, v6 just kinda put that back but not quite. They then toggle between v5 and v6.
It will catapault one of their subsidiaries into the heart of that.
Remember they used to 'own the world' through IE, very much a consumer product, and that didn't shape them.
They own Skype, one of the world's most prominent p2p communication tools, and screwed that up.
He's been given far too much credit for being a 'nice guy' whilst most operationalising the foundations left for him. He has not done anything fundamental for the company, other than changed the tone of the leadership of the company. He's a good steward.
TikTok is completely out of MS cultural reach, and in that way it's a poor fit. Remember Skype? How about IE that ruled the world and MS couldn't figure it out either.
To boot, TikTok is a fad. It's just a bigger vine, and teenager will quickly move on to something more substantial over time.
FB is truly a social network and has a degree of lock-in and therefore staying power, but younger people have largely fled it as well. Snapchat and Twitter both have baseline utility for communicating.
I'm not sure TikTok is any of that - it has the faddish appeal, but none of the underlying utility.
TikTok is much closer to a video playback/sharing platform (somewhere between YouTube and Vine) than a social communication platform. Direct messaging isn't even enabled by default, and even in direct messaging you're very limited in what you can send. You can't even send images unless they're already in the TikTok universe.
It just doesn't seem to be any more of a social network than YouTube is. I can perhaps see some possible value in Microsoft acquiring a fulsome social network of some kind, but a faddish YouTube-like platform? It's baffling.
It certainly has the danger of being like Bayer's acquisition of Monsanto and all the Roundup liability.
TikTok is facing many privacy lawsuits including the same Illinois biometric law problem that Facebook is currently trying to resolve. You'll remember that Facebook attempted a $550 million settlement, but the judge rejected it as being far too little. So now it is $650 million and as far as I've heard the judge has yet to accept or reject it. Facebook has admitted that this lawsuit could potentially cost them up to $45 billion if it goes to a jury.
I've seen commentary that TikTok will try to resolve all the lawsuits quickly so it can be acquired. But Facebook has been trying to settle their lawsuit for 6 months or more, and TikTok doesn't have that kind of time.
There are many out there that certainly must have far more insight into this than me, but I am definitely skeptical about this idea.
I suspect, what will happen with TikTok is they will migrate the company over completely to Windows/Azure products internally, so that it's funneling a good deal of money back to the mothership, then spin it off into a stand-alone company. They'll make a decent profit off this.
This isn't MS's typical strategy, but it's not unheard of either. Since TT doesn't really compete with any of MS's core segments, but it also doesn't compliment any of them, I think this is the most likely scenario.
I think facebook would pay a hefty premium even above that; handing Microsoft a buzzing social media platform on a silver platter - with the weight of Microsoft's resources behind it. Surely Zuckerberg's nightmare manifest...and he has no real chance of trying to outbid - what with all the anti-trust press.
So, sure there is value, but feet to the ground
So, are there multiple suitors? If so, who? Facebook and Google probably are out because of fear the sale will be disallowed because of their market dominance.
Facebook okay, Google is not even a player in social networking unless you are referring to YouTube, since it is a video platform.
But I feel, fear of competition laws is not the major delimiter in the whole Tik-Tok sale fiasco; This is state initiated after all.
But from a consumer perspective, Please no. We don't need brain numbing, limited attention content flooding the YouTube, it's not like there are no such content already. Artificially prolonged > 10mins content for Ads are the ones featured by YT algorithm, but there are certain gems who make videos purely for telling the world about what they are making in <5 mins videos.
Except that's not Google's doing. YouTube does have an auto-placement option for mid-roll ads, but if you see more than 5 ad breaks, that's usually the uploader's own manual placement. In fact, if the ad placement seems natural, that's probably the uploader's own doing as well, as the auto-placement function is very inconsistent in recognizing good spots to insert ads.
I do believe its an absurd price though, Facebook is around $288 per user vs $588 here. If a platform that is very good at making money from Millenials, Gen X and even Boomers (all of these generations are established in their careers, and have far more money than Gen Z) is $288 per user how is this ever going to pay off?
Also, the 85m users of TikTok considered here are all U.S. users, who on average must be (potentially) more valuable than the average Facebook user.