Tweet This: Twitter approaches TikTok with offer to purchase

August 16, 2020

3 min read

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What's going on here?

Twitter has been in talks with ByteDance, the Chinese owner of TikTok, to express an interest in purchasing the US operations of the video-sharing platform.

What does this mean?

On 7 August 2020, President Trump issued an executive order requiring US companies to cease business with TikTok within 45 days, due to espionage-related security concerns linked to the Chinese Communist Party. TikTok has threatened legal action against the US in response. 

Meanwhile, Twitter’s talks with TikTok put it in direct competition with Microsoft regarding a deal (read more about Microsoft’s plans to buy TikTok here). Microsoft is certainly in the advantageous position due to its approximate $1.6tn market capitalisation, in comparison with Twitter’s $29bn. Market capitalisation refers to the total value of a company’s outstanding shares. This is calculated by multiplying the overall number of a company’s available shares by the current price of one share.

Analysts have argued that Twitter may be unable to pull off an acquisition deal within 45 days, due to concerns over its size. The social networking service may require acquisition financing if it is to match Microsoft’s estimated $30bn offer and become a competitive player, because TikTok’s US operations are estimated to cost tens of billions of dollars. However, Twitter may gain the upper hand from competition regulators as a smaller company: Microsoft could face high levels of scrutiny due to its existing tech standing.

What's the big picture effect?

This story provides the next chapter of the current US and China tensions. The actions taken to ban TikTok portray it as the new political scapegoat in the ongoing trade war, since no evidence has been unveiled to suggest that the platform undermines US national security. Yet, with buyers coming into the mix, friction between the two nations could be eased if TikTok’s US operations are no longer under ByteDance.

It is worth noting the economic difficulties that Twitter may face if it attempts to execute a deal. Without acquisition financing, Twitter is unlikely to be able to afford TikTok, let alone see it through long term. Back in 2017, Twitter shut down video app Vine after struggles with profitability and pressure created by competitors including Snapchat and Instagram. Currently, concerns surround the longevity of the app in Twitter’s hands and whether it can truly compete with the aforementioned alternatives. Instagram alone has 1bn users and the introduction of Reels on 5 August 2020 means it will effectively offer the same service as TikTok. Will Twitter have the financial backing to be able to distinguish TikTok? It seems unlikely.

Politically, Twitter is at a further disadvantage due to its close censoring of Trump’s account, which the President notoriously uses to deliver threats of war and deal with his HR. Fears of Trump banning the social networking site have culminated in very little so far, apart from highlighting the problematic situation of balancing free speech with Twitter’s right to moderate its content. But since the two are intrinsically linked, the crux of the matter remains that Trump may use a Twitter buyout to continue waging war against China online.

The effectiveness of Twitter’s talks ultimately depends on Microsoft’s efforts to action a deal. The tech giant would benefit from TikTok’s share of the online advertising market to leverage an inroad into digital marketing. Predictably therefore, Trump has pledged his support of a Microsoft buyout if the US government get a generous share of the proceeds; this course of action may also mean Twitter is not seen aligning with the US over China. Of course, it remains unclear which way TikTok will go, but with the proposed ban in 45 days coming ever-closer, TikTok’s time in the US may soon be up.

Report written by Evangeline Taylor

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