TikTok Banned in US: Investors Eye Meta Platforms
The wheels of government move slowly, yet surely. Now lawmakers are taking dead aim at Chinese businesses, and their actions will have far-reaching implications for investors.
A bipartisan bill introduced last week will ban TikTok in the United States. U.S. lawmakers believe the wildly popular social media platform is an instrument of the Chinese government.
Investors should buy Meta Platforms (META).
TikTok is owned by ByteDance, a Chinese conglomerate. Executives in China claim the businesses operate independently. They say data for TikTok’s American members is stored in Singapore and in the United States, not China. Until July there was no direct evidence any personal information had ever been accessed by employees based in China. Then Buzzfeed News reported that this was no longer true.
Leaked audio recordings from 80 internal meetings revealed that Bytedance employees repeatedly accessed non-public data from American TikTok users. Data collected from Americans is supposed to be stored on Texas-based servers controlled by Oracle (ORCL), under the Project Texas agreement.
That agreement came out of a 2019 investigation by the Committee on Foreign Investment in the United States. A CFIUS arrangement in 2020 later moved all TikTok data collected from Americans to Texas.
The elephant in the room is the soft power of the Chinese Communist Party. The state has absolute authority over all Chinese firms. And TikTok is currently the most downloaded, and fastest growing social media platform in the world, now with 1 billions monthly active users.
It’s not hard to see where all of this is going.
Christopher Wray, director of the Federal Bureau of Investigations, said in December that TikTok raises national security concerns. Wray fears that social media platform is ultimately a Trojan horse that might be used by the CCP to influence what Americans see, hear and ultimately think.
The Anti-Social CCP, or Averting the National Threat of Internet Surveillance, Oppressive Censorship and Influence, and Algorithmic Learning by the Chinese Communist Party Act is a bill sponsored by Sen. Marco Rubio, R-Fla., Sen. Mike Gallagher, R-Wisc., and Raja Krishnamoorthi, D.-Ill. The legislation seeks to restrict ByteDance and TikTok from influencing Americans by banning the software.
The new bill comes after seven states, South Dakota, Nebraska, Texas, Maryland, South Carolina, Alabama, and Utah have implemented statewide TikTok bans for public employees, according to a report in December from Reuters.
The political move against TikTok is real. Winners are shaping up.
Meta Platforms has been kicked around Washington since the 2016 Presidential election when the Facebook parent company was blamed for misinformation campaigns. Meta has also steadily been losing market and mindshare to TikTok. That is likely to change, soon.
Ultimately, big stock price moves are about changes in narratives.
When lawmakers impede TiTok, Meta is the logical winner. With 3 billion unique members across its Facebook, Instagram, and WhatsApp social platforms, the Menlo Park, Calif.-based company has the scale and software dexterity to move quickly with new TikTok-like offerings.
More importantly, banning TikTok will change the narrative around Meta from a Washington punching bag, to a new growth story.
Unsurprisingly, Meta shares have performed better than the rest of big tech since November when news of the TikTok potential ban began to heat up.
At $117.09, Meta shares trade at only 14.7x forward earnings and 2.5x sales. The gross margin remains north of 80%. That metric should grow as the company cuts staff in the months ahead.
The stock has been in a holding pattern. Traders should buy shares on the first close above $125. Shares could easily rally to $160 as the TikTok woes build, a gain of 28% from the $125 entry point.
Washington policy-making is an inexact science. There are lots of moving parts and storylines, however, the outcomes drive stock prices. It’s obvious to see what is happening with TikTok, and what companies will benefit.
Investors should look for a new entry point for Meta.
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This article can also be found on Forbes.com.
