This is why Microsoft wants to buy out Tik Tok

Recently, news came that Microsoft was looking to buy out Tik Tok’s US operations. With the chance that Tik Tok could spin-off its US operations in order to continue operating in the country, people are taking notice. Meanwhile, President Trump is looking to ban Tik Tok for various reasons.

Why is it that Microsoft would want to buy out Tik Tok?

While management hasn’t mentioned their intent on this deal, I have a theory that it’s because they’re looking to find growth outside of the software business. Why else has Microsoft tied its top executives’ compensation to the performance of LinkedIn? It looks like the board wants Microsoft to focus on developing a bigger social media business.

According to Microsoft’s latest earnings report, LinkedIn’s revenue only increased by 10%. With their software business continuing to be the highlight of the business, those top executives don’t get to benefit a lot from it. While it does help boost his profits from stock options, it doesn’t help with their overall compensation.

Microsoft’s latest earnings press release

If the board really wanted Microsoft’s executives to focus more on expanding their social media business, the acquisition of Tik Tok can convince the board to boost executive compensation. Since the board wanted Microsoft to have growth channels that aren’t in the software business, Tik Tok itself provides the company with a growth channel outside of software. Not only can Tik Tok enhance Microsoft’s social media division but can also help the company enhance profits outside of software. Plus, Tik Tok is continuing to grow at a fast rate and has the potential to move the needle in Microsoft’s financials, making this deal really attractive.

Also, since Microsoft is a big tech company and is hungry for data, acquiring Tik Tok will give Microsoft access to tons of data. That data can be used to create products and services and help the company diversify away from software.

Altogether, there are many reasons why Microsoft would want to acquire Tik Tok. Since Microsoft’s board members want the executives to focus on creating growth avenues away from software, the acquisition of Tik Tok provides Microsoft with a growth avenue that fits their needs. While Tik Tok is undergoing a lot of uncertainty, as long as Tik Tok can continue to operate in the US, Microsoft will be able to acquire its US division with little hassle. Also, since the company has been accelerating its market share gains in the social media industry, acquiring Tik Tok will be Microsoft’s new catalyst.

In the meantime, we’ll first have to see whether the Trump Administration allows Tik Tok to continue operating in the US or not.

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