TikTok Ruling in Focus for Meta, Alphabet, Oracle Investors

(Bloomberg) -- Tech investors are girding for the latest development in TikTok’s legal saga. Social media and search companies like Meta Platforms Inc. have a lot at stake, as does Oracle Corp., which counts TikTok as a big customer.

The US Court of Appeals in Washington is due to issue a ruling on whether to uphold or overturn a law that requires TikTok’s China-based owner to sell the app by Jan. 19, or face a ban in the US. The ruling probably won’t be the end of the drama, as any outcome would likely be appealed. But traders are watching every step carefully, with TikTok’s more than 170 million US users and billions of dollars in advertising revenue top of mind.

For investors in companies like Instagram parent Meta, Google parent and YouTube owner Alphabet Inc., and smaller rivals like Pinterest Inc. and Snap Inc., a result that weakens TikTok would be a big positive. The company, owned by ByteDance Ltd., is used by about a third of US adults — and a majority of Americans under 30 — and is growing more rapidly than competitors, according to Pew Research Center surveys.

Upholding the law would be a “clear victory for Meta shares,” according to Matt Stucky, chief equity portfolio manager at Northwestern Mutual Wealth Management. Consensus estimates have baked in TikTok competition through 2026, offering “all upside” for Meta stock, Stucky said. Meta’s Instagram features a TikTok rival product known as Reels.

Meta, which is up more than 70% this year, hit an intraday record in Thursday morning trading.

Pinterest may also capture more user attention if TikTok were out of the picture, according to Stucky. It’s been making a push into shoppable content, competing with similar efforts from TikTok and Instagram. TikTok said this week that it tripled its US shopping sales to more than $100 million on Black Friday.

Pinterest shares have had a volatile year, slumping in the summer after poor results before garnering some positive analyst attention a few months later. A weak sales forecast for the holiday quarter took that shine off, leaving the stock down 12% this year. Snap is also having a rough year, with a decline of more than 4% in early Thursday trading pushing the shares down 28% year-to-date.

There’s also upside for Alphabet, though to a lesser extent, said Stucky. The main benefit would be via search, where Google faces a lot of competition — primarily from ChatGPT.

On the flip side, if TikTok is ultimately banned in the US, it would be negative for Oracle, which provides the social media app with cloud infrastructure to store and process US user data. Oracle said in June that a ban would threaten its financial results, and Evercore ISI estimated that TikTok may account for as much as $800 million of annual sales. Shares in the software firm have been on a tear this year, rising almost 80%.

For traders and analysts, gaming out the various possibilities is a difficult task. The losing side in the upcoming ruling could appeal to the Supreme Court, delaying any final resolution. The re-election of Donald Trump — who has had a change of heart about TikTok and is now against a ban — also complicates matters.

TD Cowen analyst Paul Gallant laid out three possibilities: The court upholds the entire TikTok ban statute; the court rejects the TikTok-specific ban but upholds the authority for the president to ban apps on national security grounds; the court rejects the entire statute as unconstitutional.

The most likely outcome is that the court upholds the ban, Gallant wrote, but he expects TikTok to survive anyway — with Trump potentially ordering a “Project Texas-like monitoring arrangement and declaring TikTok to be officially divested and free to continue operating in the US.” Project Texas was a plan introduced by TikTok several years ago to cordon off Americans’ data from China with help from Oracle.

Bloomberg Intelligence litigation analyst Matthew Schettenhelm sees a 70% chance that TikTok loses the DC Circuit ruling, with the company then likely to make a last-ditch plea to the Supreme Court to pause the law’s Jan. 19 deadline.

The justices could opt to take a case raising a consequential free speech question, likely putting it on a track for a decision in June, according to Schettenhelm. Still, he notes that TikTok would also need to convince five justices to freeze the Jan. 19 date, and sees this as “possible yet unlikely.”

Other legal maneuvering could also delay things well past that deadline, and Trump’s involvement might affect the outcome in various ways, as laid out here by Bloomberg’s Alexandra S. Levine. Another possibility is that the DC court comes up with a “technical solution” by ruling that the law violates the Constitution’s prohibition against a so-called “bill of attainder,” according to Georgetown law professor Anupam Chander.

And of course, there’s always the possibility that TikTok could be acquired, which would change the landscape entirely as well — though ByteDance has said it won’t sell its US TikTok business and there are probably few buyers that could handle such a large and potentially contentious acquisition.

For social media stocks, Oracle and the wider tech sector, whatever the court decides, it likely “isn’t going to be the end of the story,” Stucky said.