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Look the other way

13 July 2020 By Gina Chon

TikTok’s mounting problems in the United States are a bonus for an American buyer. President Donald Trump is considering banning the service because of its Chinese roots and Congress is closing in, too. Then last week, Amazon.com said it would ban the app – following others like Wells Fargo – before doing an about face. It suggests the service has multiple headaches to confront. A U.S. company could help with a deal.

TikTok has put several measures in place to try to appease U.S. watchdogs. The company recently hired former Walt Disney executive Kevin Mayer, an American, to lead the service. But White House adviser Peter Navarro told Fox Business on Sunday that he expects “strong action” from Trump on TikTok and called Mayer a “puppet.”

The U.S. government could come down on TikTok several ways. The Trump administration could bar American companies from doing business with TikTok by putting it on a so-called entity list, for example. The Committee on Foreign Investment in the United States, which reviews overseas deals, could force TikTok parent ByteDance to divest Musical.ly, a lip sync app it acquired in 2017 and merged with TikTok.

That means a U.S. company could be pushing on an open door. On Snapchat parent Snap’s enterprise value-to-revenue multiple of 20 times, TikTok could be worth some $17 billion, if Sensor Tower’s revenue estimate for the first half of 2020 were doubled. On one hand, that’s conservative. It is growing at a faster clip than its U.S. peers. But it has also been slow to monetize users, which makes companies like Twitter trade at a discount to more profitable peers like Facebook.

Normally a deal that size – about two-thirds the current value of Twitter – would raise eyebrows from antitrust watchdogs. And Facebook, with 3 billion monthly active users, would probably still face insurmountable challenges. But the push to de-Chinafy TikTok opens the regulatory doors for other firms like Disney or Twitter. For U.S. companies, it can serve a purpose, too. Not only do they get the secret sauce that has made TikTok’s baking videos go viral, they earn some much needed brownie points with the bigwigs in Washington, too.

 

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