Microsoft is hoping to finish its deal acquiring TikTok in the U.S. by the September 15th deadline given by President Trump. D.A. Davidson Senior Vice President & Senior Research Analyst Rishi Jaluria joins The Final Round panel breaks down the details.

Video Transcript

SEANA SMITH: Let's get to more on this big news, that story that we are watching today. Again, Microsoft confirming that it is in talks, Amy was just saying, to buy TikTok's US business. For more on this, I want to bring in Rishi Jaluria. He's DA Davidson's senior vice president, and also senior research analyst there. And, Rishi, let's just start with the big thing, that which is the stock's reaction today up 5%. What do you make of that? And then also, do you just think it makes sense for Microsoft to be buying TikTok's US business?

RISHI JALURIA: Yeah, absolutely. And-- and thank you so much for having me. And I'm-- I'm glad you're-- you're mentioning the stock price action today because it's one thing to say stocks up 5%, 6%. The-- the better number here, I think, is Microsoft added 90 billion to its market cap today for a company that, if they bought the entire TikTok, would be a $50 billion acquisition. It-- it's a little crazy to me to kind of frame those-- those numbers.

I think what is getting investors really excited is Microsoft has been absolutely crushing it under Satya in the enterprise side, but they really haven't done much on the consumer side. In fact, if we go over the long history of Microsoft, they really haven't succeeded very much on the consumer side, be it their personal devices, be it, you know, the Windows phones, Bing. The only notable exception being the Xbox. And-- and really, if you look at it, TikTok and Xbox are targeting pretty similar demographics.

And, you know, TikTok, I think, is a very attractive asset for Microsoft to really get its leg of growth in the consumer business. They don't have a true consumer social network. They have LinkedIn, and I think they've crushed with that acquisition. But that's an enterprise social network. And-- and, you know, the last point I'd make that I think is really fascinating is Microsoft is the only one that can buy TikTok.

Because you'll notice last week, right, you had the-- the CEOs of-- of Amazon, Google, Facebook, and Apple all up there with antitrust scrutiny. Microsoft, for those of us that have been following this, has been avoiding that under Satya. And it's crazy to think the company that everyone called the evil empire back in the '90s is now, you know, this kinder, gentler Microsoft, but that's why they're the ones in the position to make this acquisition when the very logical acquirers would be Facebook and-- and Google over Microsoft.

SEANA SMITH: Yeah, we see that is very interesting. We were talking about that antitrust component of it last week when we initially heard the results. But I am-- or, heard the reports, excuse me. But I'm also just curious just about you mentioned the price here of TikTok. I mean, what do you think, what price do you think Microsoft should be willing to pay in this? And then also just am curious to get your thoughts about the restrictions that could potentially come with this deal just from a government perspective.

RISHI JALURIA: Yeah, it-- it's a great question. And remember, like, currently the deal that-- as it's being negotiated is Microsoft would buy the US, Canadian, Australia, and New Zealand operations of TikTok, not the entire company. I personally think if they're going to carve out countries, they should add India to that list because that is TikTok's largest market, and-- and India has obviously banned the app given what's going on on the border over there. But realistically, I mean, you know, Microsoft could get away with something well less of $50 billion.

And if you look at TikTok's growth, right, if you look at the reports out there, they're going to do a billion in revenue this year, $6 billion in revenue in-- in 2021. And-- and this is a-- a massive core of assets, so, you know, we-- we've joked about some of the prices that Microsoft has paid for its acquisition, right? A lot of people were making fun of Microsoft for buying GitHub when they did, and yet it's turned out we were wrong on that, right? GitHub has been a great acquisition for Microsoft, as has LinkedIn.

So, you know, I think Satya has a track record under him of-- of doing these smart big risky deals, but getting them right because they grant autonomy to those properties, right? It's still LinkedIn today. It's not Microsoft LinkedIn. And I-- I think as long as Microsoft follows that same playbook, if they pay kind of what is, you know, in that $50 billion range for the entire business or some fraction of that for certain countries, I think Microsoft can turn this into a true success for them.

ANDY SERWER: Rishi, I agree with you 1000%. When you do these acquisitions in tech, leave them alone. I mean, look at YouTube, success, Instagram, success, LinkedIn, success. And-- and then gradually maybe you integrate, but you need to let them bake for a good long time. The one exception, I guess, with Microsoft that hasn't worked out so well is Skype, you could argue potentially. So isn't it Facebook that would have the most to be fearful of here if Microsoft bought TikTok?

RISHI JALURIA: Absolutely. You know, I think there's always been this story of-- of migration of young people away from Facebook. But in this case, they were lucky enough to own Instagram and to be able to monetize that and-- and fend off the threat from Snapchat. You know, with TikTok, I think they're-- they're in a tougher situation because TikTok has really grabbed that market, I think, way better than-- than the way Snapchat was able to.

And so Microsoft putting its entire marketing and investment muscle behind TikTok, and-- and by the way, doing the really smart thing in saying, we're going to make sure that data sovereignty is there. We're going to take all that TikTok data and put it on Azure servers, which, by the way, is a little bit of a benefit for them that people tend to overlook. I think absolutely this can pose a-- a real to Facebook, especially in that, you know, young demographic that Facebook is-- is scared of losing over time.

INES FERRE: Rishi, Ines here. I remember in the late '90s when Microsoft was in threat of being split right into two. And then in-- in appeals, the company was not split into two. But as you mentioned, it wasn't in the hearings last week, and so this would be the company that could do this. But would it be pretty much the only kind of acquisition that it could do as far as social media is concerned because of regulatory issues going forward? And also, what do you make of the statement that Microsoft made about Satya Nadella being in talks with President Trump? I mean, it almost seemed like we got clearance from the government already what they're saying.

RISHI JALURIA: Yeah, absolutely. And-- and, look, on-- on the first point, I-- I do think it-- you know, if Microsoft were to try to not just get TikTok, but-- but buy other social networks and-- and eliminate competition, then suddenly you're going to see that same antitrust hammer come back down on them. But, you know, I don't-- I think Microsoft is smarter than to do something like that and to try to engage in-- in true antitrust practices. Even in areas where they dominate like the Office Suite, right, those products all work well with their competitors.

Slack, Zoom, Okta, [INAUDIBLE], they all integrate well with Microsoft products. And that, to me, is the big difference of Microsoft today versus Microsoft in the '90s. And-- and absolutely, I think you're-- you're right. I expect this deal to go through, right, because even some of the-- the biggest China hawks in Congress have tacitly voiced approval and-- and, you know, almost seemingly hoping that Microsoft does this.

And-- and so the fact that Satya's having conversations with President Trump, the fact that you have China hawks in Congress, you know, supporting this deal, I think it's going to happen because of that. Because they-- you-- you can't outright ban it. You're not going be able to prevent young people in a free country from using the social media app of their choice. So better that it's happening under an American company that has no ties to the Chinese government versus letting it run rampant.

SEANA SMITH: Certainly interesting stuff there. Rishi Jaluria, DA Davidson's Senior Vice President and Senior Research Analyst, great to have you on the show. Thanks so much for taking the time to join us.

RISHI JALURIA: Thank you so much.