The clock is ticking on a TikTok ban. Last month, President Joe Biden signed a bill that would ban video-sharing social media app TikTok if its Chinese parent company, ByteDance, doesn’t sell it within 270 days (with a possible additional three months if a sale is in progress). The concern for U.S. officials is that the Chinese government might have access to American users’ data on TikTok and that it poses a potential security risk.
ByteDance has said it won’t sell and on Tuesday it sued the government, challenging the legislation on First Amendment grounds. This lawsuit will spark what is expected to be a lengthy legal battle that pits national security concerns against free speech protections for the company and its millions of U.S. users.
If the government prevails in court and the popular social media platform is no longer available in the U.S., that could effectively remove a big competitor for several other companies. Three social media stocks that could benefit the most from a TikTok ban are Meta Platforms (NASDAQ: META), Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), and Snap (NYSE: SNAP). Here’s why.
1. Meta Platforms
One of the big reasons Meta struggled financially in 2022 was that TikTok was exploding in popularity. Investors were concerned about whether Meta’s social media platforms could compete against it. Meta CEO Mark Zuckerberg has admitted in the past that TikTok is a “very effective competitor.”
Meta has recovered somewhat from that 2022 scare and continues to be a leading social media company. Meta properties Facebook, Instagram, and WhatsApp all have more than 2 billion monthly active users. TikTok has just over 1.5 billion.
Last month, Meta posted strong results, with revenue totaling $36.5 billion for the first three months of the year, a rise of 27% from the same period last year. Its ad impressions during the period were up by 20% because its apps remain popular options for advertisers. If TikTok is banned in the U.S., that could lead to even more ad money switching over to Meta’s apps, resulting in even better growth rates for the overall business.
The stock has fallen 11% in the past month as Meta’s high valuation has become a bit of a concern for investors. But if major competitor TikTok no longer poses a significant challenge to its growth, this stock could again prove to be a hot buy.
2. Alphabet
Another company that could generate stronger growth due to a TikTok ban is Alphabet. Its video-sharing platform, YouTube, hosts short-form videos called Shorts that give its users a TikTok-like experience.
YouTube Shorts generate more than 2 billion monthly views. However, according to data from eMarketer for the last quarter of 2023, social views per video in the U.S. remained far higher for TikTok at around 144,000 versus just 54,000 for Shorts. Instagram Reels was much more of a rival to TikTok, coming in at just under 121,000 social views.
Like Meta, Alphabet is still doing well in terms of growth. In the first three months of 2024, revenue topped $80.5 billion and rose by 15% year over year. But this company, too, could see its ad revenue numbers soar even higher if a TikTok ban comes into effect.
3. Snap
The social media stock that might need the most help is Snap. Unlike the other two companies on this list, it still struggles with profitability. In its earnings results for the first three months of this year, Snap posted a net loss of $305.1 million, which was slightly better than the $328.7 million loss it incurred in the prior-year period. This is even as the company’s revenue rose by 21% to $1.2 billion.
Snap competes for the attention of younger users, and that’s where TikTok is a key competitor. According to recent data from Pew Research, 63% of U.S. teens say they use TikTok compared to 60% for Snapchat. YouTube, however, remains firmly in the top spot with 93% of teens using the platform.
While there are undoubtedly more rivals for Snap to worry about than just TikTok, the absence of TikTok could definitely boost Snap’s popularity with its key target market. And it could help bring in more revenue and potentially lead to a path to profitability for Snap. While this is the riskiest tech stock on our list, Snap might have the greatest potential upside in a TikTok ban.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
