Of all the tech companies with $100 billion-plus valuations that could conceivably bid for TikTok, Oracle (ORCL) - Get Oracle Corporation Report would probably rank near the bottom of the list in terms of ideal matches, somewhere between Intel (INTC) - Get Intel Corporation (INTC) Report and Accenture (ACN) - Get Accenture Plc Class A Report.
Nonetheless, according to CNBC, The Financial Times and Reuters, Larry Ellison’s company has held initial talks to buy TikTok’s operations in the U.S., Canada, Australia and New Zealand, in tandem with some current investors in TikTok parent ByteDance. CNBC also reports hearing from a source that Oracle-TikTok talks “have accelerated in recent days,” and that Oracle and Microsoft (MSFT) - Get Microsoft Corporation (MSFT) Report, which is reportedly interested in buying all of TikTok, “are far ahead of any other companies that have expressed interest.”
With equity markets still in a buy-first-and-ask-questions-later mood when it comes to such reports, Oracle’s stock is up about 2% in Tuesday trading. One does have to wonder how many Oracle buy orders have been placed today through a brokerage named after a certain medieval English folk hero.
Oracle does in theory have an asset or two that could benefit from a TikTok acquisition. The company has marketing software and data offerings -- they compete against offerings from the likes of Adobe (ADBE) - Get Adobe Inc. Report, Salesforce.com (CRM) - Get salesforce.com, inc. Report and SAP (SAP) - Get SAP SE Sponsored ADR Report -- that could benefit from the data TikTok has about the interests of consumers who use its platform, and which in turn could be leveraged to help companies better promote themselves on TikTok.
From Markman on Tech: Why Facebook Wins If Microsoft Buys TikTok
And though its market share remains a small fraction of that of the public cloud market’s top players, Oracle does have a cloud infrastructure unit that it could use to host at least some of TikTok’s content.
On the other hand, Oracle -- unlike Microsoft -- has no history of running a major consumer-focused business. And it definitely doesn't have experience running a consumer business that faces as much serious competition, or is as dependent on appealing to ever-shifting user tastes, as a social media platform that derives the lion’s share of its engagement from younger consumers.
Also unlike Microsoft, which sells ads via Bing, LinkedIn and the Bing ad network, Oracle doesn’t have experience running an ad business at scale. And whereas Microsoft has major technology investments in fields such as search and machine learning that it could leverage to improve TikTok, Oracle is hardly seen as a tech leader in such areas (even if Larry Ellison would likely insist otherwise).
Beyond all these potential nuts-and-bolts issues, there are major questions of cultural fit. Oracle, like many older enterprise software firms, has a very sales-driven culture. And it doesn’t exactly have a reputation either for recruiting top technical talent or being willing to absorb large short-term losses to help grow a promising new platform.
So why is Oracle (per multiple reports) looking to buy at least a part of TikTok? A couple of things might be at play.
Oracle has been seeing little to no revenue growth in recent years, something that in turn spells share losses within an enterprise software industry that (per third-party data) was growing at a high-single digit clip prior to COVID-19. And with valuations for faster-growing software firms (but not Oracle’s) having gone through the roof, it probably wouldn’t be easy to make a large acquisition of a high-growth peer pay off right now.
Also, given the very unique circumstances surrounding TikTok sale discussions, there might be an element of political opportunism at work. Given that TikTok-Microsoft talks could be derailed by something like Microsoft’s interest in acquiring the whole of the business or President Trump seeking a payment to the U.S. Treasury, Ellison might be hoping to leverage his political ties to the Trump Administration to get a valuable asset at a discount, regardless of the synergies (or lack thereof) with Oracle’s core businesses.
But even if Oracle bought part or all of TikTok at a healthy discount to its true value, there are a lot of reasons why such a deal could end badly for both Oracle investors and TikTok. Facebook (FB) - Get Facebook, Inc. Class A Report and Snap (SNAP) - Get Snap, Inc. Class A Report might ultimately be the biggest winners if a deal came to pass.