The U.S. House of Representatives passed a bill on Saturday that’s not good for popular social-media app TikTok. But it may have gone unnoticed by many investors because it was packaged inside of a foreign aid bill for Ukraine and Israel. Because of the bill, TikTok’s parent company is faced with the choice of selling its popular app in the U.S. or pulling it from the U.S. market entirely.
Facebook’s parent company Meta Platforms (NASDAQ: META) is seen as a clear beneficiary of the TikTok legislation. I’ll explain why that’s the case but I’ll also explain why Meta investors might want to tap the brakes on their enthusiasm.
First, let’s tap the brakes
I’ve noted that the TikTok bill made it through the House of Representatives but this doesn’t mean it’s now a done deal. The bill still has to make it through the Senate. And after that, it has to be signed by President Biden.
Granted, there’s bipartisan support for the bill and it passed the House of Representatives with ease. Therefore, it’s reasonable to expect it to pass the Senate. From there, comments from President Biden make it sound like he will indeed sign it.
However, even if the bill is signed by the president, TikTok wouldn’t be in immediate danger of disappearing. Parent company ByteDance would have up to a year to become compliant with the law. By then, it’s possible Biden would no longer be the president, suddenly pushing U.S. policy in another direction. Therefore, ByteDance might stall for time.
Finally, ByteDance could sell TikTok. And if it does, the app might not ever leave the U.S. market, leaving the competitive landscape unchanged. This possibility is quite realistic. For example, former Treasury Secretary Steve Mnuchin is already assembling a team of investors to buy TikTok if it goes up for sale.
In summary, Meta Platforms’ shareholders shouldn’t celebrate yet. The bill hasn’t completely passed yet, ByteDance will have about a year to weigh its options, and TikTok may never disappear in the U.S. anyway if it’s sold to a party that can keep it running.
Why it could be good for Meta
The company sells hardware products, is pushing research in artificial intelligence (AI), and has big plans for the metaverse. But in 2023, 98% of Meta’s revenue came from digital advertising. Therefore, advertising is clearly the most important thing for Meta investors to watch.
Digital advertising depends on user engagement. It doesn’t matter how many users a platform technically has. What matters is whether they are using the platform and can be shown an ad. And for Meta, video is a key component of user engagement.
In the fourth quarter of 2023, video watch time for Meta was up a whopping 25% year over year, which shows how quickly user engagement is growing.
In the Q4 conference call, Meta’s CFO Susan Li said that video has lower levels of monetization right now. That’s why the company is doing what it can to increase engagement. Regardless of what happens with TikTok, Meta is busy building its AI engine for recommending videos to viewers, which can boost engagement if done well. Given the 25% growth in Q4, there’s reason to believe that Meta’s AI engine is off to a good start.
However, it stands to reason that Meta would additionally benefit if TikTok did disappear from the market. Advertisers spend money on the popular platform. But if it were banned, those dollars would flow elsewhere. And some of that spend would logically wind up with Meta.
In conclusion, the TikTok bill that just passed in the House of Representatives doesn’t mean anything for Meta stock right now and it’s possible that it never does. Therefore, Meta investors need to focus on what the company is doing regardless of what happens with TikTok.
That said, if things with TikTok play out a certain way, then it could eventually give Meta’s business a boost. Therefore, it’s not entirely immaterial to investors today and it’s worth monitoring.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
The House Just Passed the TikTok Ban. Here’s What That Means for Meta Stock. was originally published by The Motley Fool