This is an email from Buy/Sell/Hold, a newsletter by Marker.
Why Microsoft Needs to Walk Away from TikTok
It isn’t worth getting stuck between Donald Trump and the Chinese government.
Welcome to Buy/Sell/Hold, Marker’s weekly newsletter that’s 100% business intelligence and 0% investment advice. Each week, our writers Steve LeVine and Rob Walker make sense of the most important developments in business right now — and give them a Buy for positive trends or clever moves, a Sell for mistakes or missed opportunities, or a Hold if they’re noteworthy but too early to call.
⏰ Is TikTok Worth the Headache? ⏰
The Buy/Sell/Hold Analysis
Microsoft’s potential acquisition of TikTok’s U.S. operations must be the most talked-about deal of the year. Everybody has a point of view, and everybody has an angle — especially President Trump and the Chinese government.
And that’s exactly why Microsoft should walk away from this scheme. Immediately. Acquiring TikTok isn’t worth the hassle, the risks, or the drama.
Crafting this kind of deal would be tricky under any circumstances. But these circumstances are singular: The Trump administration, on the theory that TikTok could collect user data for the Chinese government, has asserted that TikTok will be “banned” in the United States unless its Chinese parent, ByteDance, finds an American buyer. This stance has ticked off China; one state-run media outlet summed up the situation as the “looting of TikTok by the U.S. government in conjunction with U.S. high-tech companies.” President Trump poured gasoline on this smoldering sentiment by demanding, weirdly, that the U.S. Treasury receive a cut of the sale. And last night, he issued an executive order essentially barring TikTok from doing business in the U.S. unless the company is sold within 45 days.
Closing the deal will clearly be a massive time-and-attention suck that puts Microsoft directly in the crossfire of one of the most fraught geopolitical rivalries in history and — no matter how much it grovels — risks antagonizing a global superpower and a massive market.
And for what? Globally, TikTok is not profitable, though the company reportedly projects annual revenue to mushroom from $1 billion to $6 billion next year. It claims 100 million users in the U.S., a base that skews toward the 18–24 demographic popular with advertisers. But that demographic is also notoriously fickle, and there’s no way of knowing whether its popularity will last. Instagram has already rolled out a TikTok-like feature, and app downloads of other rivals are spiking. Maybe TikTok will beat them all, but remember: There was a time when MySpace looked unstoppable, Tumblr was red-hot, and Vine was a sensation with an audience of 200 million.
— Rob Walker
⚡ Lightning Round ⚡
⚡ YouTube Absorbs Google Play Music. Google finally put a date on when it would end its Google Play Music service: By December, it will be fully replaced by YouTube Music. It’s just the latest step in Google’s consolidation around YouTube as its core video, music, and livestreaming product, and it’s a smart move — with more than 2 billion global users, YouTube is already enormously popular. Plus, it’s easier for Google to update and innovate within one platform instead of several competing Google apps. Buy.
⚡ Edgewell Finds Itself Another Razor Company. Edgewell, the owner of brands like Playtex, Schick, and Edge, announced on Tuesday that it has entered into a deal to acquire men’s grooming brand Cremo for $235 million. Back in February, Edgewell’s plan to acquire DTC razor brand Harry’s for $1.37 billion fell through after the FTC intervened with an antitrust lawsuit, so it’s likely banking on Cremo’s smaller price tag and sales numbers to smell better to the federal government this time around. Harry’s, meanwhile, is left out in the cold, still looking for its exit. Hold.
⚡ SoftBank Wants a Slice of… the Short Story Market. Radish, a serialized fiction startup, raised $63.2 million in a funding round led by SoftBank Ventures Asia. That’s a huge injection for Radish, which had previously raised $5 million, and it should give the company a big leg up on competitors like Serial Box, which has only raised $16.1 million to date. Radish plans to use this cash to hire Hollywood screenwriting talent and replicate a serial fiction reading habit that’s popular in Asia with American readers, but this sounds more like a trigger-happy fund overspending on a startup that’s applying Quibi’s faltering business model to a supremely niche literary genre. Sell.
⚡ Facebook Doubles Down on Office Space. Facebook, one of the first big companies to announce permanent remote work policies this May, has agreed to lease 730,000 square feet of office space near Penn Station, bringing its total Manhattan footprint to more than 2.2 million square feet. Now that commercial real estate is in free fall, Facebook is likely getting a good deal — and making a clear bet on work from home reverting to work from office once a vaccine becomes available. Hold.
📈 The Number: $100 billion
The amount that U.S. credit card debt fell from February to June
Yes, you read that right: In the throes of a pandemic-fueled economic collapse that has left around 30 million Americans unemployed and brought GDP down 9.5% in Q2, U.S. credit card holders have, in the aggregate, managed to pay down their debts. Obviously, the experts expected the opposite — that massive unemployment would lead to a spike in living off plastic. But according to a Wall Street Journal analysis, government stimulus checks and additional unemployment benefits have provided an effective cushion for many. But that’s not the whole story: The economy also seems to be bifurcating even more than usual, with one part of the workforce that transitioned to working at home driving up the savings rate because there is simply less opportunity to spend, and another part scrambling for a new gig, hoping the government will get its act together and implement some new round of relief. Right now, the split between those two drastically different scenarios is obscured by the top-line numbers. But that split is likely to become more obvious, and soon.
— Rob Walker
📖 Marker’s Long Read: The inside story of Trek, the billion-dollar bike maker trying to solve the pandemic bicycle shortage.
🔎 Marker’s New Fixation 🔎
If the Dow and Nasdaq weren’t high-stakes enough for you, there’s a stock market for news junkies willing to bet real money on political predictions. PredictIt is an online market run by Victoria University in New Zealand that lets you buy “Yes” or “No” shares in topics like “Will Mike Pence be the 2020 Republican nominee for vice president?” and “Will the Democrats have a brokered convention in 2020?” Each share is bought for a price between $.01 and $.99 and ultimately pays out at $1 if the prediction comes true, but traders can attempt to buy low and sell high anytime before a topic closes. The Democratic VP market has been particularly lively lately — “Yes” shares on Karen Bass rose to $0.16 before crashing back down to $0.03. Just in case you wanted to experience even more anxiety while skimming the morning’s headlines.
— Jean-Luc Bouchard, Senior Platform Editor, Marker
(Not already signed up to receive Buy/Sell/Hold? You can sign up for it here.)