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Scrutiny of ByteDance’s (BDNCE) TikTok has increased in recent days, as lawmakers around the world have ordered the social network removed from government devices and US lawmakers have threatened to ban the app. directly on national security concerns.
Whatever happens with TikTok, its “moment of truth” is likely to happen sooner rather than later and the consequences of any decision could be far-reaching, investment firm Wedbush Securities has said.
Analyst Dan Ives likened the political pressure on TikTok coming from the Biden Administration and the Committee on Foreign Investment to a “deja vu moment,” similar to the pressure it faced from the Trump Administration.
US-China relations have grown icier in recent years, and TikTok is caught in the middle of this tug-of-war between the world’s two biggest superpowers.
“This is a very complex situation, as ByteDance’s ownership of TikTok and the gold jewel algorithm at the center of this security debate is a hot topic that would not necessarily be resolved simply by a spin-off or sale of the assets,” Ives wrote. in an investor note.
Earlier this week, TikTok CEO Shou Zi Chew reiterated those thoughts, stating that a sale would not address US security concerns.
The fears stem from the US government’s concern that the Chinese Communist Party could require TikTok to hand over data about its American users.
If a ban were to occur, it would also significantly disrupt the ad market. TikTok has reportedly held a data security summit with advertisers in recent weeks, according to Information. However, some of the attendees were not fully convinced by TikTok’s assurances, the news outlet added, citing sources.
Advertisers may reduce spending on the platform and consider other options for their spending if a full ban occurs.
Media reports have recently suggested that TikTok is reviewing its options, going so far as to look at deals it considered during the Trump Administration, including the Oracle option (NYSE:ORCL) partnering with Walmart (WMT) for a TikTok acquisition.
In late 2022, new concerns about TikTok were raised by the Biden Administration, causing a delay in an agreement with the company over the security of its data. New concerns included how TikTok would share information with the algorithm that determines which videos to show its users, as well as the level of trust lawmakers would place in the company.
As part of the deal, TikTok would store its US data only on US-based servers, likely run by Oracle (ORCL), as opposed to its own servers in Singapore and Virginia. Additionally, Oracle (ORCL) would monitor TikTok’s algorithms for content recommendations over concerns about Chinese government interference.
The deal would also see TikTok create a board of security experts who would report to the US government.
TikTok said in June that it would route all of its US traffic through Oracle’s cloud technology (ORCL) infrastructure to better protect the information of its US-based users.
Ives said the partnership with Oracle (ORCL) was designed to lock down “this data and provide reassurance to the US government about access to consumer data that is locked up in China and Beijing,” but concerns have increased since then and are unlikely to decrease anytime soon. .
TikTok CEO Chew will testify before Congress on March 23, an event that Ives believes will be “closely watched.”
If TikTok and ByteDance (BDNCE) decide to fight the US government over what it requires for the app to stay in the country, any ban is likely to propel Snap (New York Stock Exchange:SNAP) and Meta Platforms (NASDAQ: GOAL), Ives added, echoing thoughts put forward by other analysts, including Citi’s Ronald Josey.
However, Ives went a step further, saying a ban would “significantly increase” tensions between China and the US, especially in light of the “technological cold war” brewing in software and semiconductors.
“This is all a high-stakes game of poker and clearly Beltway is putting more pressure on ByteDance to strategically sell this key asset in a major move that could have significant ripple impact,” Ives explained.
Last week, Senate Intelligence Committee Chairman Mark Warner introduced bipartisan legislation aimed at policing the threat of technology from “adversary” nations, a move that points to a possible ban on TikTok.
