Apparently, Microsoft (NASDAQ: MSFT) approached Pinterest (NYSE: PINS) in recent months to discuss a potential deal to acquire the $51 billion social media platform. Pinterest has soared in popularity recently, as its user engagement increased during the pandemic when more people turned to social apps for entertainment.
This article was originally published on MyWallSt — Investing Is for Everyone. We Show You How to Succeed.
Throughout 2020, Pinterest grew by 100 million users overall, which almost tripled the firm’s share price across the past year. As physical stores closed amidst global lockdowns and more businesses began selling online, consumers also used the app to shop for various items. In addition, advertisers started to use the platform more. When other social media companies were coming under fire for their moderation tools failures many advertisers boycotted apps like Facebook and instead started selling on Pinterest.
Microsoft eyes potential social media deals
These rumors likely tie in with Microsoft’s acquisition strategy. The tech giant wants to create a portfolio of active online communities that could run on top of its cloud computing platform. Pinterest, which has around 459 million monthly users, would be a great addition to this portfolio.
The acquisition would have been Microsoft’s largest ever but might have also tested Biden’s administration’s feelings of allowing huge tech companies to strike these kinds of deals. Microsoft’s lack of social media ownership has actually shielded it from antitrust investigations, as politicians look into the impact social networks are having on society. As Microsoft mainly sells to businesses and governments, rather than to direct consumers, it is not subject to the same level of surveillance. On the other hand, by not owning many social media companies Microsoft is at a bit of a disadvantage as tech platforms are becoming increasingly more social.
In 2020, Microsoft first made it known that it wanted to buy prominent social media companies when it made a move to buy the U.S. operations of TikTok. The viral video-sharing app was being put under immense pressure from former President Donald Trump’s administration over concerns that it posed national security concerns. Unfortunately for Microsoft, the potential deal failed when Oracle entered discussions to buy the app.
The technology company has made some successful acquisitions though. Microsoft has snapped up business connection site LinkedIn, internet hosting for software development provider, GitHub, and Minecraft, an online game with over 130 million active players. The software company believes that by acquiring these online communities, it can introduce large-scale applications to its Azure platform. Pinterest currently uses Amazon Web Services as its infrastructure provider, making it a very attractive buy for Microsoft.
Buying applications with large amounts of users also has another benefit: data. Microsoft has previously used data from LinkedIn to customize its other apps and business services. Pinterest has created a very specific user group of hobbyists, artists, and shoppers in the online community and the images they share show what kind of things they like or might want to buy in the future. These insights would be very valuable as Microsoft could use the data for its marketing services and for its own e-commerce tools.
Microsoft might be trying to boost its reputation too by buying popular social media companies. The company has racked up a few failures lately, including letting MSN messenger die and allowing Skype to be almost wiped out by Zoom.
Why would Microsoft want to buy Pinterest?
By broadening its advertiser base, creating new ad formats, and e-commerce solutions — Pinterest is in line to compete with Facebook and TikTok.
One great thing about Pinterest is the nature of its content. As the app is mostly full of just images, it does not come under the same scrutiny that its peers do over moderation failures. This is particularly attractive for advertisers and shows the future revenue potential for the company. It will be interesting to see if Pinterest sticks to its guns and remains independent, which might be hard if more Big Tech money comes sniffing.
MyWallSt makes it easy for you to pick winning stocks. Start your free trial with us today— it's the best investment you'll ever make.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.