TikTok has recently emerged as a major player in the social-media scene with young users flocking to the app for original content. The app is commonly used for short dance, talent, and video clips that may remind people of Vine. Like many up-and-coming social-media platforms TikTok's users skew young, although that's how the established social-media companies such as SnapChat (SNAP), Instagram, Facebook (FB), Twitter (TWTR), and Reddit gained a foothold before attracting older users as they became more well established. Recently though, the app is under fire from the President and has already been banned from several countries.
President Trump's current position is that the app will be banned from the United States on Sept. 15 unless an American company purchases it.
But why is TikTok being banned in the first place and how can investors take advantage of this situation?
The simple answer for why TikTok is being banned by many countries is China. There have been multiple reports and rumors that the Chinese app has been secretly gathering information from users and sending it to China. A class-action lawsuit was filed in California federal court back in November 2019 for this reason. The lawsuit also accuses TikTok and its parent company, ByteDance, of having ambiguous privacy policies and is concerned that the data collected can be used to track users in the United States which the company benefits from by selling targeted ads. TikTok has also reportedly been used to organize campaigns to create fake registrations to Trump rallies, while comedian Sarah Cooper has become a viral star with her lipsynch videos of Trump's statements.
Whether or not these reports are accurate shouldn’t be the primary concern for those looking for investment opportunities. Either way the United States government is in the process of banning the app unless a U.S. company purchases it. The current tensions between China and America are undoubtedly contributing to this development and the main question for investors is which companies will benefit the most from TikTok being banned.
Facebook (FB) is one of the first companies that many might think will benefit from a TikTok-less United States. That assumption is very reasonable. Facebook itself might not benefit as much since it's not really a direct competitor to TikTok. Facebook's other major property, Instagram, would benefit tremendously from this development as its use of short videos either posted on a timeline or as part of a story do compete with TikTok. Many members use Instagram for posting short clips to share with their friends but another social media has is used for short videos even more.
SnapChat (SNAP) would likely be a big winner with its focus being on photos and videos. People tend to use SnapChat for short videos but they are generally very different in nature than TikTok as its focus is more on sharing with friends than with creating content for a wider audience.
Google (GOOGL) and Netflix (NFLX) might be two of the biggest winners of a TikTok ban as they compete with the app for consumer’s screen time. Many wouldn't originally think of Netflix as a competitor but the company itself praised TikTok’s growth and would much rather have its users watching The Witcher than a bunch of 15-second clips. Youtube, a subsidiary of Google, is one of TikTok’s biggest competitors as they both offer shorter videos that people can consume in bite-size pieces and don't have to feel like they are committing a significant amount of time to watching something.
Reddit would probably benefit slightly as well as the site does have plenty of popular short videos but its identity is more for its anonymous posting and meme content. There are also plenty of subreddits that offer useful information for almost any community you could think of, including investing tips or pure speculation (looking at you r/wallstreetbets). Reddit’s user base would definitely be happy with a TikTok ban as there is a general hatred for the app and its content from a large number of redditors.
One of the more interesting companies for investors to look at would be Twitter. Twitter as a platform may see a bump if TikTok is banned as short clips and GIFs are commonly shared on the app. But the real interesting part of Twitter isn't Twitter at all, it's Vine, which Twitter acquired in 2012 and then shuttered in 2017. TikTok in all its glory really seems like Vine 2.0 with clips lasting 15 seconds as opposed to 6 seconds.
Twitter discontinued Vine back in 2017 and ever since, the market for short social media video clips has been vacant until TikTok came along and brought it back to life. If TikTok does eventually get banned in the United States, Twitter could have a very unique opportunity to bring back Vine to try and dominate that corner of the market once again. Twitter originally said it was not able to use the app to the best of its ability back then but, given the success of TikTok, a second chance might be in order.
Finally, the company that is on everyone’s mind at the moment with this recent news is Microsoft (MSFT). Microsoft doesn't immediately appear to have as much to lose or gain from TikTok’s ban, but if the company can complete a purchase the social media service, it would instantly become a big player in a brand-new market. Microsoft's current social-media platform, LinkedIn, has a much older user-base given its focus on careers.
Purchasing TikTok would bring the tech giant into the social media market with a tremendously popular app. The acquisition could also give Microsoft an injection of youth and make the company "cool" again.
Microsoft has an amazing opportunity to enter a massive market with a hugely popular platform that is only just getting started. The ability for TikTok to transform into something much more than a collection of 15 second clips and become ingrained with other Microsoft software is something the company should want to avoid missing out on. Being the "savior" of the platform could be a huge marketing tool as well.
The potential ban of TikTok is something very unusual in the social-media world but there are some legitimate concerns about the app. Investors can look at other competing social media platforms for profitable investments, but its companies like Netflix, Google, and Microsoft that could offer the biggest returns here. The battle against TikTok has been interesting but the battle for TikTok might just be getting started.
