Once acquiring TikTok (or at least a good chunk of its operations) was off the table, Microsoft (MSFT) apparently turned its sights on Pinterest (PINS) . And though TikTok and Pinterest are very different platforms, Microsoft's strategic motivations for pursuing each deal appear to have been similar at least in some ways.
Last August, Microsoft held talks to buy TikTok's operations in the U.S., Canada, Australia and New Zealand, and was reportedly interested in buying the entire business from Chinese parent ByteDance. However, talks eventually broke down, and TikTok ultimately agreed to a more limited deal involving its U.S. operations with Oracle (ORCL) and Walmart (WMT) .
Now the Financial Times reports that Microsoft approached Pinterest "in recent months" about an acquisition, but didn't reach a deal. The FT added that Microsoft "has been pursuing an acquisition strategy aimed at amassing a portfolio of active online communities" that could be hosted on Azure.
Pinterest has long relied on AWS for its cloud hosting needs. By migrating Pinterest's services to Azure, Microsoft could boost Pinterest's gross margin while also further increasing Azure's scale. There are clear parallels here to how migrating TikTok, which has been relying heavily on Google's (GOOGL) cloud infrastructure, to Azure would yield cost savings.
Likewise, just as Microsoft could have used its various online ad resources -- from Bing search ads, to the Bing Ad Network, to LinkedIn's news feed ad business -- to help flesh out TikTok's ad business, it could do the same for Pinterest's burgeoning ad business, which lends itself well to both e-commerce advertising and product branding/discovery. And both platforms could in theory benefit from Microsoft's search and AI/ML expertise -- Pinterest in particular, given how much activity on its platform is search-driven.
On a strategic level, meanwhile, TikTok and Pinterest each presented Microsoft with the opportunity to own a social media platform whose apps are actively used on hundreds of millions of smartphones, and by doing so establish relationships with many consumers who might not currently be using any Microsoft products or services. And in the process, Microsoft could also gain a lot of data about consumer behavior and purchasing intent that could help inform its future R&D, marketing and branding efforts.
Also, it can't be ignored that Microsoft -- unlike Google, Facebook (FB) , Amazon.com (AMZN) or Apple (AAPL) -- isn't currently facing significant antitrust heat, and that this state of affairs isn't guaranteed to last forever. At a time when antitrust scrutiny seems to be curbing the M&A appetites of at least some of the other tech giants, Microsoft, which last September inked a $7.5 billion deal to buy game publisher Bethesda Softworks, might feel it has a limited-time opportunity to use M&A to grow its footprint while other tech giants largely restrict themselves to organic investments.
Of course, the fact that so many valuations for high-growth tech companies have gone through the roof does make it harder for Microsoft to acquire high-profile targets at a reasonable price. With Pinterest's stock having doubled since September and now trading for 22 times Pinterest's 2021 revenue consensus of $2.5 billion, it's hardly a given that Microsoft is interested in striking a deal today just because it was interested "in recent months."
But either way, the fact that (assuming the FT's report is correct) Microsoft has twice shown interest in buying a major consumer social platform over the last seven months is pretty telling. With Microsoft now sporting a $1.8 trillion market cap and interest rates for blue-chip corporate debt still at rock-bottom levels, it definitely wouldn't be surprising if Satya Nadella & Co. still ink a deal or two to acquire a well-known consumer internet platform in the coming months.
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