Three U.S. lawmakers introduced a bill on Dec. 13, titled the "ANTI-SOCIAL CCP Act," which is aimed at blocking foreign influence and surveillance of Americans by foreign governments, most specifically Russia and the Chinese Communist Party.
The bipartisan group of lawmakers sponsoring the bill released a joint statement, calling out the national security risks that TikTok represents to the U.S. as a tool to collect data on the tens of millions of Americans who use it, and to manipulate and influence their views and opinions in ways that are detrimental to the United States.
So what does this potential ban mean for U.S. social media companies, in particular Instagram and Facebook parent Meta Platforms (META 0.11%)? In recent years, Meta's growth has slowed, while the emergence of TikTok has significantly hindered user engagement. So if TikTok were to get booted out of the U.S., how much more attractive would that make Meta as an investment?
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The threat of TikTok explained
Without getting into the details, the lawmakers sponsoring the bill point out that the governments of countries like China and Russia have become increasingly adversarial with the U.S. In those countries, governments have extremely high levels of control over almost every aspect of private business. This includes the legal ability to access any data that a company has, including private customer data.
Needless to say, this is extremely worrisome for the U.S. government; if ByteDance -- TikTok's parent company -- is ordered by the Chinese Communist Party (CCP) to provide it with all of its U.S. user data, the company would be legally required to comply.
ByteDance's response to this concern is that no U.S. user data is housed in China, but it's likely that lawmakers take that position with a grain of salt, clearly seeing the risk of that being untrue as too high to take on faith. It's also possible that U.S. intelligence agencies -- sponsoring Senator Marco Rubio is Vice Chairman of the Select Committee on Intelligence -- have evidence to the contrary.
Beyond the threat of significant amounts of data about tens of millions of Americans falling into the hands of an adversarial government, lawmakers are just as concerned about foreign governments using TikTok as a tool to influence and mislead Americans. The political divide has continued to deepen in recent years, and preventing foreign adversaries from using social media as a tool to further that divide is viewed as both a political and national security concern.
A TikTok ban could help Meta where it needs it most
Over the past decade, Meta has become the most dominant social media company in the world outside of China. As the owner of Instagram, Facebook, and WhatsApp, more than 2.9 billion people used one or more of Meta's platforms daily in the third quarter.
However, those numbers have not been growing at a very high rate; third-quarter daily active users were up about 4% from last year. Meta has even more occasional users; it said 3.71 billion people used one of its apps monthly in the third quarter, up just less than 4%.
Of those users, Meta only breaks out Facebook users by region. It reported 197 million daily users in the U.S. and Canada in the third quarter, as well as 266 million monthly users.
For comparison, it's estimated that 87 million Americans used TikTok in 2021, and that number will approach 94 million this year. Most likely, the majority of TikTok's U.S. users also have a Facebook or Instagram account, and most of them are probably counted in Meta's monthly user numbers. So it's unlikely that if TikTok were to be banned, we would see a big surge in Meta's 3.7 billion monthly users.
But could it capture some of those users and see them become daily users? Potentially. After all, it's not just TikTok users who would be looking for a place to get their social media fix, but the content creators, many of whom make a living using social media.
TikTok's users aren't looking to engage with friends; they are largely there for entertainment. For Meta, this could potentially mean a boost for Reels, the closest thing it offers to a TikTok experience for users and creators.
And I think this could be helpful for Meta where it needs it the most: content that it can monetize more easily. Because even with modest user growth, Meta is seeing its bottom line deteriorate as ad revenue has declined the past two quarters, while spending (and losses) at Reality Labs continues to increase.
Meta is facing a weak ad environment, the impact of Apple's privacy changes on the value of its (now less targeted) ads, and weakening engagement. Eliminating a major competitor that produces highly engaging -- and monetizable -- content would be a boon for Meta.
But it's not a done deal
While a TikTok ban would almost certainly be a positive for Meta, it's far from a foregone conclusion that it would happen. It's also possible that ByteDance could choose to sell its U.S. operations (remember when that was all the news a few years ago?) to an American -- or nonadversarial foreign -- buyer. I think this might be a higher-probability outcome than many investors expect.
Based on all the uncertainty and potential outcomes that don't result in 90 million-plus Americans looking for a TikTok replacement and going to Reels, a potential TikTok ban doesn't look like an investible piece of news just yet. That said, there's a case for Meta as a value or turnaround stock.
