Popular video-sharing app TikTok could be banned from U.S. within six months, unless a bill that force its China-based parent company ByteDance to sell its stake is signed into law. But there is hope that the app could survive if the legislation, currently under intense scrutiny, can overcome a number of legal and congressional hurdles.
This isn’t the first time lawmakers have attempted to regulate TikTok because of its Chinese ties and the potential for an adversary to use TikTok to not only spy on Americans, but to weaponize it to influence and spread disinformation. While TikTok has repeatedly stated that it would not comply with such requests from the Chinese government, the House of Representatives nonetheless passed a measure, giving ByteDance a choice to either sell TikTok within six months, or be banned in the U.S.
The two biggest beneficiaries would be Meta Platforms (META) and Google parent Alphabet (GOOG , GOOGL) according to Analyst Scott Devitt at Wedbush Securities. Devitt and his team recently spoke with former U.S. Congressman Ryan Costello to discuss the implications of the Protecting Americans from Foreign Adversary Controlled Applications Act (H.R. 7521).
Having served in Congress for four years, from 2015 to 2019, Costello sees a better-than 55% chance that the legislation will eventually be passed in some form. And he does not believe that ByteDance would sell TikTok, which is a requirement of the legislation. As such, he expects the outcome to be TikTok being banned in the U.S. To be sure, H.R. 7521 was easily accepted through the U.S. House of Representatives on March 13, receiving wide bipartisan support.
“This bipartisan legislation is needed to protect our national security and the privacy of American consumers," said U.S. Congresswoman Shontel Brown (D-Ohio). "There are clear and legitimate concerns about applications subject to control by our foreign adversaries. It is imperative Congress take action to protect the public, young and old.” The bill targets the "threat posed by foreign adversary controlled applications, such as TikTok and any successor application or service and any other application or service developed or provided by ByteDance.”
Meanwhile, President Biden has said he is ready to sign it into law as soon as the bill reaches his desk. The very next week after the passing of the H.R. 7521 bill, the House unanimously passed a second bill, the Protecting Americans’ Data from Foreign Adversaries Act of 2024 (H.R. 7520) which would prohibit data brokers from selling Americans’ sensitive personal information to foreign adversaries. Assuming that both bills become law, Meta and Google are the two companies which are best positioned to capitalize on the approximately 170 million Americans who will now look for an alternative to TikTok.
Wedbush expects a redistribution of digital advertising which will now go to either Meta and Google. Meanwhile, according to a recent note by research and brokerage firm Bernstein, Meta could quickly attract tons of users and minutes spent on the app. “Users go where they already are. It’s likely Instagram’s Reels, where users are already watching the most short-form videos outside TikTok, and Snap’s Spotlight, which offers the highest demographic overlap with TikTok, that should be the big winners,” the note said.
TikTok’s projected U.S. revenue was expected to be in the range of $7 billion to $8 billion, the note said. These figures will now surely go to Meta and Google. “Ad dollars go where advertisers are most comfortable with the highest return on investment. Meta once again looks the likeliest winner with best-in-class ad products, while YouTube offers the highest overlap of branded campaign objectives,” the note said.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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