Mohit Oberoi
TikTok is facing increased scrutiny in the US. Analysts believe that any restrictions on TikTok would be positive for Snap, Meta Platforms, and YouTube.
TikTok has always been a controversial company due to its Chinese ownership. India banned the app in 2020 amid concerns over data privacy. Then US President Donald Trump also threatened to ban the short video app but the two parties reached an agreement to address US concerns.
Now, TikTok is facing new sets of challenges in the US. The State of Indiana has sued the company on two counts. In the first lawsuit, the state alleged that the company is deceiving users about the platform’s suitability.
Indiana Attorney General Todd Rokita accused it of “deceiving Indiana parents.” He alleged, “TikTok is actively exposing our children to drug use, alcohol abuse, profanity and sexually explicit material at a young age.”
The second lawsuit is about data security and alleges that China can use TikTok data to spy on US users. Concerns over data security are not new for TikTok. The company, which is owned by China’s ByteDance has said multiple times that it does not share user data with China.
TikTok Says It is Working with US Government over Security Concerns
TikTok has played down the litigations. In its response, it said, “The safety, privacy and security of our community is our top priority. We build youth well-being into our policies, limit features by age, empower parents with tools and resources, and continue to invest in new ways to enjoy content based on age-appropriateness or family comfort.”
It added, “We are also confident that we’re on a path in our negotiations with the U.S. Government to fully satisfy all reasonable U.S. national security concerns.”
TikTok’s assertions meanwhile have done little to impress the security regulators. Notably, under law, Chinese companies are required to share data with the government. Several Western countries are increasingly getting wary of China especially as the country’s President Xi Jinping tightens his grip on politics.
TikTok Faces Intense Scrutiny in the US, Texas Bans Use on State Devices
Several US states, especially those run by Republicans, are worried about TikTok. Texas has banned the use of TikTok on state devices and its Republican governor Greg Abbott said that the ban must be “strictly enforced.”
Referring to the vast user data that the ByteDance-owned company possesses, Abbott said, it “offers this trove of potentially sensitive information to the Chinese government.”
South Dakota, another state with a Republican governor also has a partial ban on TikTok. Maryland, Nebraska, and South Carolina are the other states which have banned TikTok.
Meanwhile, commenting on the bans from different states, TikTok said, “We believe the concerns driving these decisions are largely fueled by misinformation about our company.”
TikTok’s troubles in the US would only increase next year as Republicans take control of the House. Reportedly, the negotiations between the US and TikTok have also got delayed over national security concerns.
As part of the deal, the company is expected to shift the data of US users to Oracle servers. Under Trump also, TikTok agreed to list its US business and offload some stake to Oracle and Walmart.
Would the US Ban TikTok?
Most analysts agree that while the US would not ban TikTok, it would impose some conditions on data storage. Bank of America analysts said that a ban was not the “most likely scenario.” They added, “In a ban scenario, we would view Snap as the biggest sentiment beneficiary, followed by Meta.”
Notably, Meta Platforms is losing out in popularity among teens. The stock has crashed this year and analysts are apprehensive over its short-term outlook. Amid the crash in Meta Platforms stock, some analysts find it attractive. We have a guide on how to buy Meta Platforms stock.
Meanwhile, Cowen put a 40% odd of a TikTok ban in the US in 2023. It said, “If TikTok were banned, 26% of its users would reallocate their time spent to IG Reels, 21% to YouTube Shorts & 3% to SNAP’s Spotlight.”
Along with the digital ad business, TikTok has been expanding its business in the US and is planning to open warehouses in the country to support its e-commerce business.
ByteDance Valuation Has Fallen amid the Slump
While ByteDance is mainly known for TikTok, it has several other business verticals. The company also owns Douyin which is a short video app in China. Notably, TikTok is not allowed in China.
Earlier this year, ByteDance also announced the acquisition of a hospital chain in China, joining the ranks of tech companies like Apple, Alphabet, and Amazon that are expanding in the healthcare business.
ByteDance was valued at $180 billion in a 2020 funding round where along with the existing investors, Fidelity also participated. The valuation jumped to above $400 billion in secondary markets. However, its valuation has since come down.
Given the turmoil in public markets, valuations of private startup companies have also come down. As a result, ByteDance has no plans to go public in the near term. There is a guide on investing in pre-IPOs.
All said, given the competitive threat from TikTok, US companies like Snap, Meta Platforms, and YouTube would not mind an outright ban on the app in the US.
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This article was written for Business 2 Community by Mohit Oberoi.
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