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Mark O' Donnell
Research Analyst
August 7, 2020

NASDAQ sits above 11,000 after Trump TikTok Ban

NASDAQ sits above 11,000 after Trump TikTok Ban

NASDAQ is up 1% fueled by President Donald Trump issuing an executive order banning U.S. residents from doing business with Chinese owned TikTok and WeChat 45 days from now.

NASDAQ in Blue, Facebook (FB) in Orange

With the election 90 days away, some critics may point to this latest move as a hail Mary to gather up votes before the election. However, the U.S. government has cited security risks that take users' data from both apps and allow the Chinese Communist Party access to American's personal information. While TikTok denies all claims regarding the CCP's access to the platform's information, TikTok's terms and conditions state that the company may share information with its parent, subsidiary, or other affiliates, including Chinese businesses and law enforcement legally required to do so.

Paul Triolo, Head of Global Technology Policy at Eurasia, states the ban is akin to a "U.S. – China technology war." "The U.S. government is targeting these two very popular Chinese apps, and basically, they have national security problems." Furthermore, from the think tank New America, Graham Webster states that "A ban on WeChat could be consequential because it would practically shut down communication between U.S. and China."
However, specifically with TikTok, President Donald Trump has given them an out: Sell their U.S. related parts to an American company. The logic being, a trusted American company, will not turn over U.S. data to the Chinese government. Recently, the company that has been in talks to purchase the U.S. operations of TikTok is Microsoft. Furthermore, with a stellar reputation and over $184 Billion on the balance sheet, the U.S. technology conglomerate is in a good position for any acquisition.

Microsoft x TikTok in the future?

This will test Satya Nadella's deal-making skills, as it is either a ban on TikTok or a purchase from Microsoft; therefore, they have a decent amount of leverage over TikTok regarding the acquisition price. Furthermore, with a suggested price of $50 Billion for the U.S. business without any negotiation, around $25 - $30 Billion on $3 Billion of earnings will represent approximately 8 – 10 times earnings acquisition price. In comparison, Facebook currently trades at 30 times earnings. This may be a lucrative deal if Microsoft can pull it off.

NASDAQ futures are up around 1%,sitting healthily about the 11,000 level, Facebook led the charge up 6.59% as they take advantage of the situation by releasing their TikTok alternative, Facebook reels. Just one week ago, Facebook's CEO, Mark Zuckerberg, testified to Congress just last week regarding anti-competitive practices.

With Non-farm payrolls coming up, retaliation from China and/or further pressure from the U.S. government may provide a volatile trading session.

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