COULD TIKTOK GET BANNED?

Key takeaways

• A TikTok ban threatens to wipe billions of dollars from the US economy, while eliminating hundreds of thousands of jobs.
• Investors would only have direct exposure to ByteDance, TikTok’s parent company, through conglomerates, such as SoftBank, or investment trusts, like Scottish Mortgage.
• Companies like Oracle and Microsoft, who service TikTok’s US operations, could be hit with revenue losses due to their reliance on the company.
• Competitors like Meta and Alphabet could benefit from a TikTok ban, reaping new ad revenue as companies shift away from TikTok in favour of Instagram, Facebook, YouTube, and Google Search.

A TikTok ban could shake up the US market. 

The app contributed $24.2bn to the US economy last year, while supporting 224,000 American jobs too. An impressive seven million US businesses use TikTok as a platform to reach and target customers.

TikTok’s algorithm is at the heart of its success. It’s the driving force behind the app, fuelling marketing and revenue for businesses and individual creators alike. That very same algorithm is also what the US desperately wants to get rid of, over fears of data misuse by TikTok’s owner, ByteDance.

If President Joe Biden’s ban takes effect next month, it’ll undeniably make waves across the market, disrupting much more than ByteDance’s top line. 

The TikTok ecosystem stretches far and wide, but is the ban really plausible given its extensive reach? And what should investors do to protect themselves?

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What we know to date

Earlier this year, President Biden signed a law to ban TikTok across the country unless ByteDance sells TikTok’s American arm to an American owner. Concerns over the app’s vast collection of American user data, and what the company does with it, has driven years of scrutiny and speculation.

The law does not require TikTok to stop serving US customers outright, though. Instead, it demands TikTok sever ties with ByteDance by January 19, the day before former President Donald Trump returns to the Oval Office. ByteDance has shown no intention of complying, claiming the ruling violates the First Amendment, which protects the right to freedom of speech.

A federal appeals court has already shot that down, prompting ByteDance to start another appeal with the Supreme Court. It’s not clear whether the court will take up the case. Adding to the uncertainty is Trump’s campaign promise to “save TikTok” once back in power.

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How a TikTok ban impacts the stock market

Clearly, there is a lot that hangs in the balance. There’s no doubt that TikTok has grown into a significant force in the US economy. That’s why if the ban goes through, there would likely be a trickle-down effect impacting the market at large. 

Small, medium, and large businesses relying on TikTok for customer acquisition and sales could see their revenues take a significant hit. If so, major indices could in turn fall.

A ban on a foreign-owned company from operating in the US could also have a chilling effect on markets. 

Businesses would be sent scrambling to find new advertising platforms, potentially slicing sales and driving up costs in the interim.

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What would happen to ByteDance stock?

ByteDance is the privately held company which owns TikTok, alongside several other applications and services. 60% of ByteDance’s ownership is held by global institutional investors, 20% by its founders, and another 20% by employees. While direct investment in ByteDance is not possible, there are ways to gain indirect exposure.

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How will ByteDance investors be impacted?

ByteDance’s valuation has fluctuated in recent years. Analysts attributed the decline in valuation to geopolitical tensions between China and the US. ByteDance’s proprietary algorithm is a competitive advantage that Reuters claims the firm would retain, even in the event of selling TikTok.

SoftBank, a tech conglomerate, holds a stake in ByteDance through its investment division. Although it sold part of its investment in 2023 after the US passed legislation laying the groundwork necessary for a TikTok ban, SoftBank retains some exposure. 

Scottish Mortgage Trust also has ByteDance exposure. The TikTok owner makes up 3.1% of Scottish Mortgage’s portfolio. So, similarly to SoftBank, it isn’t overly exposed, and shouldn’t be massively impacted by the impending ban. 

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Stocks expected to fall and rise if TikTok is banned 

TikTok’s ban would also influence its partners, suppliers, and competitors. 

Oracle, TikTok’s primary cloud infrastructure provider, has direct exposure to the potential ban. Analysts estimate TikTok contributes $480m to $800m annually to Oracle’s revenue. If so, that would represent around 1% to 1.5% of its total sales. Oracle acknowledged in its annual report that losing TikTok as a customer would harm its financial performance.

Microsoft is another major player affected by TikTok’s fate. It’s another one of TikTok’s cloud computing providers, and Microsoft reportedly earns $20m per month from these contracts. That’s a much smaller piece of the pie than Oracle, but if the app were banned, it would be quite the turn of events for the firm, which even tried to buy TikTok’s US business several years ago. 

TikTok’s competitors could also benefit from the ban. American ad dollars spent on TikTok would likely shift to other platforms. Meta could see increased spending on Instagram, Facebook, and Reels. Alphabet might benefit from additional ad spend on YouTube and Google. Even smaller players like X (the platform formerly known as Twitter) and Snap, could see an uplift.

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What should investors do now?

As one of the world’s most popular social media apps, a ban could spark new opportunities for competitors or buyers, reshaping America’s digital landscape as we know it. 

For investors, diversification will help keep your portfolio resilient regardless of whatever happens next. Investing across geographies and industries is key to limiting your risk exposure from TikTok’s uncertain future.

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