Microsoft Said To Halt TikTok Talks As Wedbush Says Deal Makes ‘Strategic Sense’

Microsoft Corp (MSFT) has halted negotiations to buy the U.S. operations of the video-sharing app TikTok after President Donald Trump said late Friday he opposed the deal, the Wall Street Journal reported.

The president’s statements prompted TikTok to make additional concessions, including agreeing to add as many as 10,000 jobs in the U.S. over the next three years, but it isn’t clear if those will change Trump’s stance.

The software giant has reportedly been in advanced talks with TikTok parent Bytedance Ltd., with momentum toward a deal that they believed met the White House goal for the popular app to get bought by a U.S. company. Those plans were interrupted when Trump told reporters on Air Force One that he preferred to ban the app and wouldn’t support a sale.

Before Mr. Trump’s remarks, the two sides believed the broad strokes of a deal could be in place as early as Monday. According to the report, the White House has been involved in the discussions for weeks and made it clear from the outset that the desired outcome was for TikTok to be “American owned.”

In a statement Saturday, a White House spokesperson said, “The administration has very serious national security concerns over TikTok. We continue to evaluate future policy.”

The deal talks aren’t believed to be off the table, but rather the two companies are trying to get clarity on where the White House stands and whether it is planning a separate action that would make it difficult for TikTok to operate in the U.S.

Commenting on a potential deal, Wedbush analyst Daniel Ives reiterated a Buy rating on the stock with a $260 price target, saying that for Microsoft this would be a “big bet on the consumer social media space, which the company has stayed away from over the last decade”.

“With TikTok, valued in the private markets at roughly $50 billion, currently facing criticism from the Trump administration and on Capitol Hill around potential national security concerns this could be the right partner at the right time in Microsoft,” Ives wrote in a note to investors. “Its consumer strategy remains in flux and an aggressive acquisition (or strategic investment) of TikTok would be Microsoft throwing its hat in the ring and trying to compete with other tech giants such as Facebook in a new avenue of growth for the next decade for its consumer business.”

The analyst added that if Microsoft did buy TikTok it would make “strategic sense”, although investors would take some time to get comfortable with this consumer path.

Shares in Microsoft have gained about 31% this year as the tech giant benefited from increased demand for remote services and cloud solutions during the coronavirus pandemic.

Overall, Wall Street analysts share Ives’ bullish outlook on the stock. The Strong Buy consensus scores 27 Buy ratings versus 3 Hold ratings. Despite the recent rally, the average price target of $225.71 still implies 10% upside potential over the coming year. (See Microsoft stock analysis on TipRanks)

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