Could TikTok Get Banned Before It Goes Public? Congress Hearing Throws Doubt On Company’s Future, Keeping Tech Investors On Their Toes

Key takeaways

• TikTok faced a hostile Congressional hearing over its ties with the Chinese government, which has prompted fears over user data and privacy
• TikTok and parent company ByteDance’s rumored IPOs are at risk as the Biden administration looks to potentially ban the app or attempt to force a sale
• Meta, Alphabet and Snap stocks all rose during the hearing, which was branded a ‘disaster’ for TikTok

Geopolitical tensions between the U.S. and China escalated this week after TikTok was under-fire from Congress, with the Biden administration calling for the sale or ban of the popular video app.

Despite its wild popularity, concerns over the Chinese-owned company’s access to user data and its potential to undermine national security have come to a head. A rare bipartisan Congressional hearing was in full agreement that TikTok should be banned in the U.S.

Should the ban occur, U.S.-based social media companies like Instagram and YouTube could snap up TikTok’s advertising share and make some serious gains with Wall Street.

Let’s take a look at what went down.

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What happened at the TikTok hearing?

TikTok is said to be worth $66 billion, has over 150 million U.S. users and is the fourth most valuable media brand in the world. Its ties to the Chinese government, user privacy and safeguarding children against harmful content were the focus of the bipartisan Congressional hearing, which occurred late last week.

The CEO of TikTok, Shou Chew, was put through an hours-long grilling by a group of Congress officials who focused on user safety and privacy. Chew is the former CFO of Bytedance, TikTok’s parent company, and owns shares in the business – something he tried to downplay during the hearing.

But he didn’t pull punches when it came to the question of how involved the Chinese government was with TikTok’s day-to-day activities. “Let me state this unequivocally: ByteDance is not an agent of China or any other country,” he told Congress.

Chew may have been there to defend TikTok’s independence from the Chinese government, but he also got in a couple of digs at how American companies have handled data in the past.

“With all due respect, American companies don’t have a great track record with data … Just look at Facebook and Cambridge Analytica,” he pointed out.

Could we see a TikTok ban in the U.S.?

The headwinds have been pointing towards a TikTok ban even before Chew began his testimony. The Biden administration is keen to see TikTok either under U.S. ownership or sold.

China has hit back at the proposal, saying “… to force TikTok to sell will greatly damage Chinese and global investors’ confidence to invest in the US. If the news is true, China will firmly oppose it.”

At the hearing, Chew also committed to Project Texas, TikTok’s initiative to ease U.S. regulators’ concerns. He said TikTok would be deleting all U.S. legacy user data from its company’s servers by the end of the year.

As a further measure, TikTok pledged $1.5 billion to ring-fencing U.S. data and creating a ‘firewall’ between its U.S. and Chinese operations. U.S. cloud services provider Oracle would house all U.S. user data going forward, giving the company access to TikTok’s source code and becoming a third-party monitor.

But the plan didn’t seem to sway Congress officials. One Wedbush analyst wrote during the hearing that it was a ‘disaster moment’ for TikTok and predicted a sale to a U.S. tech company within months. During the hearing Snap stock was up 4.6%, Meta jumped 3.7% and Alphabet, the owner of YouTube, climbed to 2.4%.

Is TikTok a public company?

So where can you buy TikTok stock? The answer is that you can’t – the company’s never been listed publicly on the stock market, largely due to these ongoing privacy and user safety concerns.

TikTok is a private business that has already faced one scuppered IPO. In 2020 it allegedly planned on going public, but the Trump administration wanted to force TikTok’s sale to U.S.-majority ownership.

The effort failed when Bytedance and TikTok were able to successfully argue against a proposed federal ban in court, but the torch has been lit again with this latest hearing.

TikTok’s IPO would also be separate from Bytedance’s, which has been rumored for Hong Kong or Shanghai. Bytedance, which also owns the Chinese version of TikTok called Douyin, was recently valued at $220 billion.

However, any investors looking for a piece of the TikTok and ByteDance IPOs will be left disappointed for now. No official plans have been announced in light of the ongoing tensions between China and the U.S., plus ongoing issues with Douyin and TikTok’s shared algorithm technology, leaving both U.S. and Chinese regulators unhappy.

Which companies will benefit from a TikTok ban?

TikTok’s U.S.-based competitors are likely rubbing their hands with glee at how the hearing went, with each set to gain financially should TikTok be banned.

A senior credit officer at Moody’s, Emile El Nems, had a statement read out during the hearing where he said “a U.S. TikTok ban would benefit YouTube, Instagram and Snap, likely resulting in higher revenue share of the total advertising wallet.”

Other experts agree with the sentiment. According to research firm Bernstein, those Big Tech companies with short-form video platforms stand the most to gain from a TikTok ban: Meta, YouTube and Snap.

Meta will likely receive the biggest uptick in users and revenue if TikTok is banned. Its Instagram Reels feature has grown exponentially, with Reels plays doubling across Instagram and Facebook last year.

“Users go where they already are. It’s likely Instagram’s Reels, where users are already watching the most short-form videos outside TikTok, and Snap’s Spotlight, which offers the highest demographic overlap with TikTok, that should be the big winners,” Bernstein analysts predicted.

The bottom line

The Congressional hearing was a grueling annihilation for TikTok, with analysts and investors alike seeing the hearing as a win for U.S.-based social media companies like Meta and Alphabet.

As it stands, there are three ways this can play out: TikTok manages to win everyone over with Project Texas; it’s forcibly sold to a U.S.-based company, or there’s a nationwide ban on the app which could spark retaliation in China – and the American people.

It’s a delicate dance, with the U.S. and China wanting to protect their own interests, that could boost U.S. tech companies with investors. Expect this issue to rumble on for a while longer.

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