President Joe Biden on Wednesday signed into law a bill that would either force the sale of TikTok or ban the app. Banning the immensely popular short-video app would be felt across the tech landscape — with implications for stocks ranging from Meta (META) and Alphabet (GOOGL) to Oracle (ORCL).
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The president's approval comes less than a day after the bill was approved by the Senate. This may be just the beginning of a drawn-out battle. TikTok's leadership has pledged to challenge the law.
Here's what to know about the legislation:
TikTok Ban: Lawmakers Call App A National Security Risk
The legislation requires Beijing-based ByteDance to divest TikTok within a year, an increase from the 165 days in the original bill that passed the House of Representatives. If it doesn't, TikTok would be banned from app stores in the U.S.
The bill won approval from the House in March. The Senate version included the TikTok bill in a larger $95 billion legislative package that provides foreign aid to Ukraine and Israel.
Supporters of the bill say TikTok's China-based ownership puts Americans' personal data at risk. There are also concerns that TikTok could use the algorithms that recommend videos on the app to influence public opinion.
TikTok, meanwhile, views the bill as a threat to First Amendment protections in the U.S. It promised a legal fight in a statement Wednesday.
"This unconstitutional law is a TikTok ban, and we will challenge it in court," the company said in a statement on X, formerly Twitter. "We believe the facts and the law are clearly on our side, and we will ultimately prevail."
The company has successfully thwarted previous attempts to ban it. In 2020, President Donald Trump attempted to ban TikTok through executive order. But the action wasstruck downby federal courts. Courts alsoblockeda state bill to ban TikTok in Montana last year, citing First Amendment concerns.
"There will clearly be myriad legal challenges from TikTok/ByteDance once this legislation becomes U.S. law, and would even get more complicated heading into the upcoming presidential election," analysts with Wedbush Securities wrote in a client note Tuesday.
Who Could Buy TikTok?
If ByteDance does indeed sell, the process will be complicated — and expensive, analysts say.
Wedbush analysts see Microsoft (MSFT) and Oracle as potential buyers. There is also the possibility of a private equity buyer. Former Treasury Secretary Steven Mnuchin told CNBC in March that he is putting together an investment group.
However, the Chinese government could also try to prevent a sale. China's Commerce Ministry said last yearthat a sale or divestiture of TikTok would involve exporting technology, requiring approval from the Chinese government.
"We see no chance TikTok would be sold with the algorithm, as Beijing and ByteDance would never allow that to happen, in our view," Wedbush analysts wrote.
The value of TikTok changes "dramatically" without the algorithms that power its video recommendations, the note added.
Who Benefits From A TikTok Ban?
If TikTok is eventually banned, "170 million U.S. users, 3.3 trillion minutes, and roughly $8 billion to $14 billion in ad dollars need to find a new home," Bernstein analysts wrote on Monday.
Meta and Google-parent company Alphabet could benefit.
"We believe it will very likely be a two-horse race between Meta's Reels and (Google-owned) YouTube's Shorts, with Reels the big winner given how much progress Meta has made building out superior features and functionality," Bernstein analyst Mark Shmulik wrote in a client report.
Snapchat, meanwhile, has the "highest demographic overlap" with TikTok, Shmulik added.
On the stock market today, Meta fell a half-percent to close at 493.50. Snapchat parent company Snap (SNAP) slipped more than 2.5% to 11.07. Google shares closed slightly higher on the day, at 159.13.
TikTok-Oracle Connection
Another stock to watch is Oracle. Oracle's Cloud Infrastructure business is the primary cloud vendor for TikTok's U.S. business. Oracle has never disclosed the total value of its deal with TikTok. The Information reported in 2020 that it could reach $1 billion annually.
In a client note Wednesday, Evercore ISI analysts estimated TikTok could be worth between $480 million and $800 million in annual revenue for Oracle Cloud Infrastructure, about 5% of the division's sales. But the analysts, who rate Oracle with a positive outperform, say it is "very early days" to worry about the impact of a TikTok ban on Oracle.
"We acknowledge that the TikTok uncertainty could remain an overhang on the shares until we get closer to earnings in June, but we also believe that Oracle's momentum around OCI remains a bit underappreciated," Evercore ISI analyst Kirk Materne wrote.
Oracle stock closed slightly higher, at 115.40. Shares have lost 9% in the past month after big gains that followed Oracle's earnings report in March.
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