Barring an intervention from the Supreme Court or last-minute sale, TikTok will be banned in the United States starting Sunday. The looming prohibition for the popular short-video social media app is likely to have a range of impacts on technology stocks, including Meta Platforms, Google parent Alphabet, Snapchat owned Snap and Oracle.
Here's what investors should know:
Why Is The U.S. Pursuing A TikTok Ban?
The law banning TikTok takes effect Jan. 19, the final full day of President Biden's term. Biden signed the bill last spring after it passed Congress with bipartisan support.
The law requires China-based ByteDance to sell TikTok's U.S. operations to another company. If it doesn't, the app will be banned.
Lawmakers cited national security concerns stemming from the app being owned by a China-based company. That includes that TikTok's video recommendation algorithm could be manipulated or that sensitive user data could be exposed to the Chinese government.
TikTok says the law is a violation of the First Amendment, calling the ban an "unprecedented censorship" of its U.S. users.
After an appeals court upheld the law in early December, TikTok took its challenge to the Supreme Court. The company argued its case in front the country's highest court on Jan. 10.
What's Next For TikTok Ban?
TikTok's fate is now in the Supreme Court's hands. By most accounts, justices appeared to be leaning toward upholding the law that would ban TikTok during the hearing late last week.
Meanwhile, President-Elect Donald Trump is set to take office a day after the ban's effective date. Its unclear what action, if any, he would take to change TikTok's fate. However, he filed a brief with the Supreme Court in late December asking the court to suspend the law's effective date until after he took office.
If the law takes effect as scheduled, app stores such as Apple's iPhone and Google Play would no longer be allowed to offer the app for downloads or updates, starting Sunday.
Existing users would likely still have access to the app if it is already downloaded on their phone. But the general expectation is that the app would "degrade over time, with usage and revenue migrating to competing platforms," as Evercore ISI analyst Mark Mahaney wrote in a client note Tuesday.
However, it is possible TikTok decides against letting the app slowly fade away. The Information and Reuters reported Wednesday that TikTok is preparing to shut off access in the U.S. immediately on Sunday, if the law is not delayed.
Who Could Buy TikTok
ByteDance could also sell TikTok's U.S. operations to avoid the ban. So far, the company has publicly resisted this option. The likely need for approval from the Chinese government would also complicate a deal.
But the Wall Street Journal and Bloomberg reported Tuesday that Chinese government officials have discussed the possibility of a sale to Elon Musk, the tech billionaire who already owns X (formerly Twitter). TikTok denied those reports, however.
Separately, a group formed by billionaire entrepreneur and former Los Angeles Dodgers owner Frank McCourt has made an offer to ByteDance, according to a press release last week. The group, called Project Liberty, also has the backing of Shark Tank's Kevin O'Leary. It has not disclosed the value of its bid.
How Big Is TikTok In The U.S.?
TikTok, which launched in the U.S. in 2016, has more than 170 million regular U.S. users, according to public statements made previously by TikTok.
As of early last year, one-third of U.S. adults said they used TikTok, up from 21% in 2021, according to a Pew Research Poll. TikTok has more U.S. adult users than LinkedIn, X, Reddit and Snapchat, according to Pew.
TikTok's owner ByteDance is not publicly traded so the company does not release revenue figures. But research firm eMarketer projects that TikTok last year collected $10.4 billion in U.S. ad revenue, roughly 12% of social media ad spending in the U.S. and 3% of the U.S. digital advertising market.
Stocks To Watch For TikTok Ban
Meta and Google would likely get about half of the "dislocated" advertising dollars from TikTok in the case of a ban, according to eMarketer's analysis. Meta's Reels product on Instagram and Facebook offers a similar algorithm-driven short-video format. Google, meanwhile, owns YouTube.
Analysts at Bernstein estimate that Americans as a whole spent about 3.3 trillion minutes engaged with TikTok content over the past year. Investors are parsing out where that time scrolling could go in TikTok's absence.
"Assuming 100% of users will dedicate the same amount of hours on the next closest platform, based on how closely the platform maps onto TikTok's features, we think Instagram Reels / Facebook is likely to get 55% to 60%, YouTube 20% to 25%, Snapchat 5% to 10% and other platforms 10% to 20%," Bernstein analyst Mark Shmulik wrote to clients Monday.
Another stock with stakes in the TikTok ban is Oracle. Oracle's Cloud Infrastructure business is the primary cloud vendor for TikTok's U.S. business. TikTok announced in 2022 that it had transitioned U.S. user traffic to OCI. Oracle has never disclosed the total value of its deal with TikTok.
Bernstein analysts estimate that the revenue is less than $1 billion
"While the loss of TikTok's Cloud revenue would impact Oracle OCI revenue, we believe the impact will happen more over time and could be delayed," Bernstein analysts wrote Monday.
