Stocks to Benefit From US TikTok Ban: Who's Buying?
For a while now, authorities in the US have been considering a ban of the popular social media app TikTok. Lawmakers are concerned that sensitive user data from the app – which is owned by Chinese company ByteDance – could pose a threat to national security, and many want to see a nationwide ban of the app in the near future.
If TikTok was to be banned in the US, it would be a major setback for the Chinese social media company, as it has over 150 million active users across America. However, at the same time, a ban could be a major opportunity for a number of US-based social media companies, as advertisers would have to reallocate their budgets to other platforms. We are talking about a lot of money here. According to CFRA Research, TikTok is set to rake in around $7 billion in US advertising revenue this year.
Below, we look at three stocks that could potentially benefit from a US TikTok ban. We also list the US politicians that have invested in these securities since the ban was first mentioned in July 2020.
US TikTok Ban: The Latest Developments
Before we highlight the stocks that could benefit from a TikTok ban, it’s worth looking at some recent developments here.
Back in March, US lawmakers grilled TikTok’s CEO Shou Zi Chew on the app’s threat to US national security in a congressional hearing. The event did not go so well for Chew, however. The hearing, which lasted for more than five hours, remained combative throughout, and did little to dissuade lawmakers about the app’s risks.
Also in March, it came to light that the Biden administration has given ByteDance an ultimatum – either they sell the platform or face an outright ban of the app in the US. TikTok has said that it is currently considering its options. However, it has made it clear that it doesn’t believe that selling the app is the solution. Meanwhile, China’s commerce ministry has said the government would “firmly oppose” any forced sale of the social media app.
Given these developments, Wedbush analyst Dan Ives has said that he believes that it is a matter of “when and not if” the app is banned in the US. The analyst – who is an expert in the tech space and covers a range of social media stocks – puts the probability of a ban at 90%.
Facebook and Instagram to Benefit
As for stocks that could benefit from a potential ban, Meta Platforms (META:US), which owns Facebook and Instagram, is an obvious one. If the Chinese social media app was banned, content creators would most likely gravitate towards Facebook/Instagram ‘Reels’, which are similar in nature to TikTok’s short-form videos. According to a recent survey by Cowen, 26% of TikTok users would turn to Instagram Reels if TikTok was banned, with the figure rising to 37% among TikTok's youngest adult users.
One brokerage that sees considerable upside for Meta in the event of a TikTok ban is Bernstein. In a recently published research note, its analysts said that Meta is likely to be the biggest winner if a ban is put in place, as the social media company could quickly attract a lot of users and advertisers would be comfortable allocating more money to the business. Its analysts believe that Meta stock could jump 20-30% upon a confirmed ban.
“Users go where they already are. It’s likely Instagram’s Reels, where users are already watching the most short-form videos outside TikTok,” its analysts wrote in the note. “Ad dollars go where advertisers are most comfortable with the highest ROI. Meta once again looks the likeliest winner with best-in-class ad products,” they added.
Another Meta bull is Gene Munster, Managing Partner at Deepwater Asset Management, which manages more than $250 million on behalf of clients and has a focus on growth investments. In a recent interview with CNBC, Munster said that he sees 10% upside for Meta stock if a ban is enacted.
As for the politician trading activity here, Capitol Trades data shows that the following politicians have purchased Meta stock since a US TikTok ban was first mentioned:
The largest purchase was from Republican Pat Fallon, who purchased between $250,000 and $500,000 worth of META stock in February 2021.
YouTube Shorts Look Well Placed
Another social media stock that could benefit from a TikTok ban is Alphabet (GOOG:US). It’s the owner of YouTube – the world’s largest online video platform. Recently, Alphabet has been having success with its YouTube ‘Shorts’ feature, which is also quite similar to TikTok’s offering. Popular among the younger demographic targeted by TikTok, Shorts are being viewed by more than a billion users monthly at present. It’s worth noting that a recent survey of 1,000 Americans showed that YouTube was the most popular alternative to the Chinese social media app.
In Bernstein’s research note, its analysts stated that Alphabet stock could potentially jump 10-20% if a TikTok ban is put into place.
“YouTube offers the highest overlap of branded campaign objectives. YouTube was also likely the largest share donor to TikTok ads, and could see ad dollars return home,” wrote the Bernstein analysts.
Analysts at Morningstar and Bloomberg Intelligence have also highlighted Alphabet as a potential beneficiary of a ban. Morningstar’s analysts have said that if a ban is approved, content, user count and engagement, and ad dollars could flow to YouTube, while Bloomberg’s analysts have said that YouTube might gain the most user market share among social media peers.
As for the politician purchases here, Capitol Trades data shows that the following individuals have purchased Alphabet stock since mid-2020:
The largest purchase was from Nancy Pelosi, who purchased between $1 million and $5 million worth of stock in June 2021.
Snap to Benefit the Most?
Finally, we have Snap (SNAP:US), the owner of Snapchat. It currently offers a feature called ‘Spotlight’, which promotes short-form video content. One thing Snapchat has going for it is that it has historically been favored by young users. In 2022, 59% of US teenagers used the app, up from 41% in 2015, according to the Pew Research Center. Only TikTok experienced a greater increase in usage among US teens.
Now, Snap is a much smaller company than Meta Platforms and Alphabet. Last year, its revenues totaled $4.6 billion versus $116.6 billion for Meta and $282.8 billion for Alphabet. Meanwhile, Snap generates nearly all its revenue from advertising, with 70% coming from North America. Therefore, it could potentially benefit the most from a TikTok ban, as the redistribution of ad spending could have a substantial impact on its top line.
One analyst who is bullish here, in light of a potential TikTok ban, is CFRA Research’s Angelo Zino. In a recent interview with Yahoo Finance, he said:
"We had pegged Snap as the biggest beneficiary out there. It's a name we think can kind of see significant improvement in DAUs and also see some potential incremental addition on the ad side of things."
Meanwhile, in Bernstein’s research note, its analysts said that Snap’s share price could potentially rise as much as 50% if a TikTok ban was enacted.
As for the politician trades here, Capitol Trades data shows that the following individuals have purchased Snap stock since mid-2020:
The largest trades were from Ro Khanna, who purchased between $15,000 and $50,000 worth of stock in both August 2021 and January 2022.
Multiple Winners From a TikTok Ban
In conclusion, a number of companies could benefit from a ban of TikTok in the US. However, experts generally agree that the three companies mentioned above – Meta Platforms, Alphabet, and Snap – are the most likely to benefit. All three have products that are similar in nature to TikTok’s offering and would most likely see an increase in users and advertising revenues if the Chinese social media app was banned.
It’s worth stressing, however, that TikTok’s fate remains uncertain, and it remains to be seen whether the US government will actually ban the social media platform. So, while a ban could have major implications for other social media companies, the situation remains highly unpredictable.