Will TikTok be the first 'victim' of US - China cold war ?

• The U.S. House Foreign Affairs Committee on Wednesday voted in favor of legislation that would give Joe Biden the power to effectively ban TikTok in the United States;
• Bloomberg reports that the U.S. is discussing potential sanctions against China with its allies if it turns out that Beijing will transfer weapons to Russia. Potentially, this shows that a possible TikTok ban could even expand;
• The reconsideration of a ban on TikTok, owned by privately held Chinese conglomerate ByteDance, comes as tensions between Washington and Beijing rise again. Fueled by the balloon incident, the renewed visit of the Americans to Taiwan, and the latest news that the U.S. has approved the sale of $619 million worth of munitions for Taiwan's F16s;
• The ban could benefit U.S. companies because users would likely start using Instagram Reels (Meta), Youtube Shorts (Google) and Snapchat Spotlight (Snap) more;
• Needham analysts covering 'growth' companies have identified Meta Platforms (META.US), Snap (SNAP.US) and Alphabet (GOOGL.US) as beneficiaries of a possible TikTok ban;
• According to Meta, Instagram Reels will stop making losses by the end of the year or early next year, and video plays on Facebook and Instagram more than doubled last 2022.

Competition on steroids

In 2022, a weakening economy and recessionary prospects caused the virtual advertising market - the primary source of revenue for all the aforementioned companies - to collapse. Snap's stock, which has the largest exposure to ad revenue, was hit the hardest. Despite this, China's TikTok recorded significant increases in user interest in 2022. A Pew Research Center survey found that 67% of teens in the US use TikTok, with 16% using it almost constantly. According to Insider Intelligence, TikTok accounts for 2.3% of the global digital advertising market. The app is growing faster than larger competitors. 

The long road

Congress banned the use of TikTok on government devices as part of a spending bill in December, the app is also being removed from state computer networks (including at universities) and Senator Josh Hawley of the Republican party in January again called for a complete national ban. Earlier in 2020, Donald Trump, among others, wanted to do so, amid concerns about the security and privacy of Americans' data. However, despite the initiative, lawmakers have a long way to go to possibly implement the ban. True, the bill could pass the Republican-controlled lower chamber, but it would be the Democratic majority in the Senate that would ultimately have to pass it while some Democrats are already signaling opposition at this stage. If the bill passes the Senate, TikTok's fate will rest in the hands of Joe Biden.

Shares of Meta Platforms (META.US), Alphabet (GOOGL.US) (purple) and Snap (SNAP.US) (yellow), D1 interval. Source: xStation5