These Stocks Could Benefit From a TikTok Ban

A potential end to Tik Tok in the U.S. is an opportunity for these social media stocks.

Vikram Barhat 12 April, 2023 | 4:09AM
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All eyes are on the ongoing controversy surrounding the popular social media app, TikTok. The Biden administration has threatened to ban the highly popular Chinese social media app from the U.S., citing national security and user data privacy concerns.

While the uncertainty surrounding the future of TikTok in the U.S. may be a cause for concern for the app’s creators and investors, it presents an opportunity for other social media platforms to capture the attention of TikTok's colossal user base.

If TikTok, owned by Chinese company Bytedance, were to be removed from the U.S. and other Western countries, content creators and advertisers may look to rivals such as Snap, Meta's Instagram, and Google's YouTube – all competing products are aimed at a similar demographic.

With a large and growing base of users, content creators, and advertisers, these companies are well-positioned to capitalize on the potential fallout from a TikTok ban.

The parent company of Google, Alphabet (GOOG) is an internet media giant with several software and hardware offerings, including TikTok rival YouTube Shorts.

Popular among a younger demographic targeted by TikTok, Shorts are being viewed by more than a billion users monthly. The company’s YouTube platform is the world’s biggest online video source with more than two billion monthly users.

“The Joe Biden administration is threatening to ban TikTok from the U.S. and talks about a possible sale of its U.S. operations to an American company have increased,” says Morningstar equity report, stressing that “the uncertainty surrounding the possible ban or sale of TikTok could benefit Snap, Meta’s Instagram, and Google’s YouTube.”

This uncertainty could nudge TikTok influencers with large subscriber bases to “focus more on, and possibly begin, pushing their audiences to other social network platforms,” the report adds.

If a ban is approved and enforced, the content, user count and engagement, and likely ad dollars could flow towards other social media platforms including YouTube, says Morningstar Equity Analyst Ali Mogharabi, who puts the stock’s fair value at US$154.

“Any interruption or decline in the quality of TikTok’s ability to provide relevant and engaging content could push its users and creators to spend more time on other platforms,” he says.

Alphabet has also been cutting thousands of jobs amid wider tech layoffs as part of a structural alignment with the new economic reality.

The parent company of the popular social media app Instagram, Meta (META) is the world’s largest online social network, with 3.7 billion active monthly users. The firm’s social media empire also includes other popular apps such as Facebook, Messenger, WhatsApp, and an ecosystem of features surrounding these products.

The firm generates 90% of its revenue through advertising, with more than 45% coming from the U.S. and Canada and over 20% from Europe.

“Meta could be the main beneficiary of a TikTok sale as an increased focus on the presence of a formidable competitor like TikTok may reduce antitrust pressure on Meta.” Says a Morningstar equity report.

Further, going by Meta's user count, the presence of TikTok has not affected Meta's network effect, the report notes.

Meta’s suite of apps, including Instagram, Messenger, and WhatsApp, ranks among the most commonly used apps in the world across both Android and iOS devices. “Meta is taking steps to further monetize its various apps, such as providing interactive video ads and tapping into e-commerce,” says Mogharabi, who puts the stock’s fair value at US$260.

The company is utilizing artificial intelligence, virtual reality, and augmented reality technologies to enhance its range of products, “which may increase Meta user engagement even further, helping to further generate attractive revenue growth from advertisers in the future,” argues Mogharabi.
 

While it only refers to itself as a camera company, Snap (SNAP) has one of the most popular social networking apps, Snapchat, in North America and Europe. With 375 million daily active users, Snap generates nearly all its revenue from advertising with 70% coming from North America.

Most of Snapchat’s users are between 18 and 24 years of age. “We believe that Snap and its users benefit from a network effect among its customer base and is starting to attract the attention (and dollars) of advertisers with a growth trajectory toward nearly US$3.8 billion in revenue,” says a Morningstar equity report.

TikTok is a formidable competitor of Snap. Thus, in the event of a TikTok ban being authorized and executed by the U.S. government, it is likely that Snap, and its U.S. peers, will witness an increase in content, number of users, engagement levels, and advertising income, the report adds.

However, unlike Meta and Google, Snap may not be able to effectively monetize its large user base, contends Mogharabi.

Although Snap’s addressable market is large and digital ad budgets continue to grow, given the intense competition in the space, “there is no guarantee that a larger portion of new digital ad dollars will flow to Snap,” says Mogharabi, who appraises the stock’s fair value to be US$16.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Alphabet Inc Class C155.72 USD-1.11Rating
Meta Platforms Inc Class A481.07 USD-4.13Rating
Snap Inc Class A11.16 USD-4.04Rating

About Author

Vikram Barhat

Vikram Barhat  A Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry, Vikram also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.

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