Microsoft-TikTok deal: how will it move the share price and ByteDance grey market?

Microsoft shares soared this week after it confirmed its plan to acquire TikTok, with the stock up 32% year-to-date.

But some analysts fear that the deal is lacking clear synergies and is simply too risky considering US authorities security concerns about TikTok’s Chinese parent company ByteDance.

On the plus side, the TikTok deal will help Microsoft access a wider advertising market, however, the consumer market remains ‘fickle’, according to Kirk Materne, senior managing director at US-based investment bank Evercore, and the company must make sure that the acquisition ‘does not overshadow the Commercial Cloud narrative that has powered Microsoft shares higher over the past five years’.

‘The prize might be bigger, but so is the risk,’ Materne added.

Evercore gave Microsoft a ‘outperform’ rating and a target price of $225 per share.

Microsoft closed at $213.29 per share on Tuesday.

TikTok deal could strengthen Xbox offering

Senior research analyst at Bernstein, Mark Moerdler, also admitted he had concerns about some aspects of the TikTok deal, which will see it acquire a portion of the social media platform, namely its operations in the US, Canada, Australia and New Zealand.

However, he believes that the deal could help bolster Microsoft’s consumer business, particularly with the hotly anticipated launch of its new Xbox Series X console.

‘Microsoft has been working aggressively to become a leader in game streaming and it is quite possible that Microsoft could be looking to leverage TikTok’s consumer relationships, video and IP in Microsoft game streaming business,' Moerdler said in a note to investors.

‘Microsoft could also use assets from their existing investments to improve / expand the reach of TikTok,’ he added.

Bernstein recently reiterated its ‘outperform’ rating for Microsoft and issued a $233 target price for the stock, implying a potential upside of 9%.

How will Microsoft deal impact IG grey market for ByteDance?

The IG grey market has seen a significant drop in the expected valuation, down to $91/$101 billion, compared to $220/230 billion at the end of June, according to Chris Beauchamp, chief market analyst at IG.

‘It has become possible that the firm will only list in China and not seek a listing in New York or Hong Kong, and with US-China tensions becoming worse the firm may find itself caught in the middle between the two nations,’ Beauchamp said.

‘Allowing Microsoft to buy TikTok would also remove one of the firm's successful divisions, further reducing its attractiveness,’ he added.

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