The Clock Is Ticking on TikTok’s Future

The wheels of government move slowly, yet surely. Now, U.S. lawmakers are taking dead aim at Chinese businesses, and their actions will have far-reaching implications for investors.

A bipartisan bill introduced last week will ban TikTok in the U.S., where lawmakers believe the wildly popular social media platform is an instrument of the Chinese government.

That's exactly why investors should buy Meta Platforms (META). I'll explain in a minute, but first let's take a look at Meta's chart …

YTD chart of Meta Platforms.
Click here to view full-sized image.


Though Meta has had quite the tumble, it likely isn't going to fall much lower, and current prices make it quite the bargain for investors. Plus, this new legislation against TikTok could be the coup Meta has been waiting for.

But more on that later …

Let's now dive into a bit of background on TikTok, which is owned by ByteDance, a Chinese conglomerate. Executives in China claim the businesses operate independently. They further claim that data for TikTok's American members is stored in Singapore and the U.S., not in China.

Until July, there was no direct evidence that any personal information had ever been accessed by employees based in China. Then Buzzfeed News reported that this was no longer true.

Leaked audio recordings from 80 internal meetings revealed that ByteDance employees repeatedly accessed non-public data from American TikTok users. Data collected from Americans is supposed to be stored on Texas-based servers controlled by Oracle (ORCL), under the Project Texas agreement.

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That agreement came out of a 2019 investigation by the Committee on Foreign Investment in the United States. A CFIUS arrangement in 2020 later moved all TikTok data collected from Americans to Texas.

The elephant in the room is the soft power of the Chinese Communist Party. The state has absolute authority over all Chinese firms. And currently, TikTok is the most downloaded and fastest-growing social media platform in the world, with 1 billion monthly active users.

It's not hard to see where all this is going.

Christopher Wray, director of the FBI, said this month that TikTok raises national security concerns. Wray fears that the social media platform is ultimately a Trojan horse that might be used by the CCP to influence what Americans see, hear and ultimately think.

The Anti-Social CCP, or Averting the National Threat of Internet Surveillance, Oppressive Censorship and Influence, and Algorithmic Learning by the Chinese Communist Party Act, is a bill sponsored by Sen. Marco Rubio, R-Fla., Sen. Mike Gallagher, R-Wisc., and Rep. Raja Krishnamoorthi, D-Ill. The legislation seeks to restrict ByteDance and TikTok from influencing Americans by banning the software.

The new bill comes after South Dakota, Nebraska, Texas, Maryland, South Carolina, Alabama and Utah implemented statewide TikTok bans for public employees, according to a December report from Reuters.

The political move against TikTok is real. Winners are shaping up.

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Meta Platforms has been kicked around Washington since the 2016 presidential election when Facebook was blamed for misinformation campaigns. Meta has also steadily been losing market and mindshare to TikTok. That is likely to change, soon.

Ultimately, big stock price moves are about changes in narratives.

When lawmakers impede TikTok, Meta is the logical winner. With 3 billion unique members across its Facebook, Instagram and WhatsApp social platforms, the Menlo Park, California-based company has the scale and software dexterity to move quickly with new TikTok-like offerings.

More importantly, banning TikTok will change the narrative around Meta from a Washington punching bag to a new growth story.

Unsurprisingly, Meta shares have performed better than the rest of Big Tech since November when news of TikTok's potential ban began to heat up.

At $117.09, Meta shares trade at only 14.7x forward earnings and 2.5x sales. The gross margin remains north of 80%. That metric should grow as the company cuts staff in the months ahead.

Washington policymaking is an inexact science. There are lots of moving parts and storylines, but the outcomes drive stock prices. It's quite obvious what is happening with TikTok and what companies will benefit.

Investors should look for a new entry point for Meta. But as always, be sure to conduct your own due diligence beforehand.

Best wishes,

Jon D. Markman

P.S. Chris Coney, editor of our Crypto Yield Hunter, has slipped on his educator hat to demystify the word of decentralized finance.

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About the Editor

Jon D. Markman is winner of the prestigious Gerald Loeb Award for outstanding financial journalism and the Society of Professional Journalists' Sigma Delta Chi award. He was also on Los Angeles Times staffs that won Pulitzer Prizes for coverage of the 1992 L.A. riots and the 1994 Northridge earthquake. He invented Microsoft’s StockScouter, the world’s first online app for analyzing and picking stocks.

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