Will Meta and Alphabet Benefit from TikTok’s Ban?

A few days ago, President Biden signed H.R. 815 into law, providing $95.3 billion in foreign aid to Israel, Ukraine, and the Indo-Pacific region. Under the provisions of the new legislation, ByteDance’s social media platform, TikTok, faces a ban slated for January 15, 2025. Two Magnificent Seven stocks poised to benefit from the ban include Meta Platforms and Alphabet.

TikTok is the fifth-largest social media platform with over 1.5 billion monthly active users (MAUs) worldwide. It trails behind Facebook (3 billion MAUs), YouTube (2.5 billion MAUs), WhatsApp (2 billion MAUs), and Instagram (2 billion MAUs). TikTok isn’t available in China, even though it’s owned by a Chinese company. Its Chinese counterpart is Douyin, a nearly identical app that is heavily censored to comply with China’s draconian internet restrictions.

The impending ban can be averted if its Beijing-based parent company relinquishes control of its U.S. subsidiary to an American entity.

Meta Platforms and Alphabet Potential

Meta Platforms, encompassing Facebook, Instagram, and WhatsApp, stand as the paramount beneficiary of a TikTok ban. TikTok’s surge posed a substantial challenge to Meta, diverting attention from its platforms and impeding user and advertising growth. 

Despite Meta’s response with the launch of Reels, TikTok remains a formidable competitor with over 1 billion monthly active users worldwide, including an estimated 102 million in the U.S. A ban could potentially redirect these users to Meta’s platforms, bolstering its market share and alleviating competitive pressure.

While Alphabet’s search advertising core business doesn’t directly compete with TikTok, its subsidiary YouTube faces considerable overlap. With its diverse content akin to TikTok, YouTube has responded by introducing YouTube Shorts, recognizing TikTok as a competitor. Although YouTube’s growth hasn’t been as visibly affected by TikTok as Meta’s, a ban could still present opportunities as ad spending and audiences become available for capture.

Amidst a tech cold war with China,TikTok has become a focal point of contention among legislators. Concerns regarding user data sharing with Beijing and its potential utilization for Chinese propaganda have fueled calls for action, despite ByteDance’s denial of these allegations.

The implications of a TikTok ban or divestiture are vast, as the social media app has more than a billion users worldwide, and thousands of American businesses and influencers rely on it to generate income. The regulatory pushback also has implications in the stock market, as rival social media stocks have bounced in response to the likelihood of a ban passing Congress.