The US has banned TikTok on government devices after the proposal was included in the spending package. Meta Platforms (NYSE: META) stock closed marginally higher yesterday but Snap fell slightly after the news.
Analysts see a ban on TikTok as a positive for US companies like Meta, Snap, and YouTube. TikTok’s popularity has hit the growth of these companies at a time when the global digital ad market has itself been tepid. Meta Platforms’ revenues yell YoY in the last two quarters and the company has predicted a YoY fall in its fourth quarter revenues as well.
To be sure, Apple iPhone privacy rules are also a headwind for Meta Platforms, and the company previously estimated that it would lower its 2022 revenues to the tune of $10 billion.
That said, TikTok competition is also hurting Meta Platforms and other US social media companies. In Q3 2022, YouTube’s revenues fell on a YoY basis for the first time ever. Snap’s sales growth is also sagging at its all-time low.
Coming back to the US ban on TikTok, it is an incremental step as many states had either already banned the app on state devices or were in the process of doing so. A full US ban on TikTok would have been a boost for Meta Platforms but analysts see its probability as quite low.
TikTok Reacts to the US Ban on State Devices
As expected, TikTok has lashed out at the ban calling it unreasonable. In its release, it said, “We’re disappointed that Congress has moved to ban TikTok on government devices — a political gesture that will do nothing to advance national security interests — rather than encouraging the Administration to conclude its national security review.”
It also pointed to its agreement with the CFIUS which is currently under review. Notably, former US President Donald Trump contemplating banning TikTok over national security concerns. However, the Biden administration loosened the screws on the social media company.
However, of late, even Democrats have also appeared to be wary of TikTok. TikTok has always been a controversial company due to its Chinese ownership. India banned the app in 2020 amid concerns over data privacy.
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.
ByteDance Valuation Has Come Down amid the Macro Turmoil
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.
Meta Platforms Faces Multiple Headwinds
The US tightening its stance against TikTok is a positive for Meta Platforms. However, the company’s woes are far from over amid the clamor for data privacy and global uproar against the alleged tyranny of Big Tech companies.
The EU has accused it of antitrust and said Meta Platforms used its dominant market position to unduly benefit the Facebook marketplace.
The Media bill in the US is another headwind for the company. If the bill gets passed, Facebook would need to pay news publishers for hosting content. The company is meanwhile not willing to do so and has instead threatened to remove news altogether from its platforms.
A similar law was previously passed in Australia also after which Meta Platforms removed news in the country. Later it restored news after the country toned down the strict regulations.
The company’s metaverse business also continues to lose billions of dollars every quarter. Metaverse is a long-term opportunity though and companies like Nvidia also see the metaverse as a key growth driver. We have a list of companies that are a play on metaverse.
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