What’s Going on with TikTok in the United States?

An explanation of what happened and what’s to come.

What is ByteDance doing about this, what companies are involved, and is this ban really happening? We’ll explore all of these questions in this article, along with stock price implications. Read on to dive in!

What Had Happened So Far?

In early August, President Trump issued executive orders to ban TikTok (and WeChat as well) from operating in the U.S. if not sold by their Chinese-owned parent companies. He gave them 45 days to complete this task.

The President’s main reasoning for the executive orders was that apps like TikTok automatically capture a lot of information from users, potentially allowing Chinese-based organizations to track the locations of Federal employees and contractors, build information for blackmail, and more. These are security risks, rather, and not necessarily realities by any means.

That put pressure on ByteDance to find a U.S. partner, and the company had entered into talks with several companies, including Microsoft and Oracle. Whichever company would strike a deal with ByteDance would mainly take over their more backend-related technical needs within the U.S. Both Microsoft and Oracle are strong organizations to take on this task.

However, ByteDance decides to go with Oracle for this deal. Shortly after this was announced, Microsoft released a public statement stating that they were not selected but believe they would’ve been a great partner for ByteDance.

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ORCL stock performance as of September 2020 from EEON

There are several reasons why Oracle won this deal over Microsoft. One reason is that Microsoft may have wanted access to TikTok’s main algorithm as part of the deal, which ByteDance wasn’t interested in providing.

A second, bigger reason is that Oracle has done a great job lobbying the White House on cloud as well as their record in data security. For the 43-year-old company, cloud computing has accounted for a large portion of profits. Oracle’s leader (Ellison) is a close ally to President Trump in comparison to Microsoft’s leader (Gates), so there were likely political considerations at play here.

Fast forward a matter of weeks and even days from the deal, President Trump announced that TikTok (and WeChat) would, in fact, be banned starting on Sunday, September 20. This would likely mean that the apps will no longer be available on app stores in the U.S., but current users who have the app downloaded can continue to use it as they please.

These prohibitions could be lifted if ByteDance resolves the national security concerns through their partnership with Oracle by the November 12 deadline.

Conclusions

Because it isn’t November quite yet, investors are waiting to see how this all plays out. However, it seems like Oracle is in a good position, as their partnership with ByteDance in terms of TikTok will likely lead to at least a temporary raise in Oracle’s stock price.

Even though Microsoft lost the deal, its stock price has no real reasons to go down that are related directly to this deal. A more pressing reason for price fluctuations, at least in the present, has to do with general selling off that’s happening for many tech stocks in September (after weeks of rising prices).

Overall, this only confirms the continuing prominence of cloud and data security technology companies.

[Note: This article is not financial advice.]

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