Last week, the U.S. Senate passed a bill that would prohibit TikTok from operating in the United States unless its Chinese parent company ByteDance sells TikTok to an American company within six months.

This legislation builds on long-standing national security concerns from U.S. lawmakers and officials regarding the potential risks of allowing a social media platform owned by a Chinese company to have access to vast amounts of personal data on American citizens.

TikTok currently has over 150 million monthly active users in the United States.

This makes it one of the largest and fastest-growing social media platforms in the country, particularly popular among Generation Z and millennials.

Losing access to the huge U.S. audience would deal a major financial blow to ByteDance and significantly slow TikTok’s worldwide growth trajectory.

However, when social platforms are banned or removed from app stores, their users tend not to simply stop using social media altogether. Instead, they migrate to alternative platforms that are still available.

In the U.S., the two largest platforms positioned to potentially absorb displaced TikTok users are Facebook and Instagram, both owned by Meta (META).

Facebook has over 180 million active users in the U.S. while Instagram has approximately 160 million.

Gaining additional users from a banned TikTok would substantially increase the already massive scale of Meta’s platforms, making them disproportionately attractive to major advertisers.

Advertising is Meta’s primary revenue stream, accounting for over 97% of its total sales.

Even a small increase in user engagement and time spent on Facebook/Instagram from new ex-TikTok users could translate to billions of additional ad dollars for Meta annually.

This influx of users and cash could provide a much-needed boost to help offset Meta’s recent challenges around slowing growth and increased competition from TikTok for younger users’ attention.

Former President Trump stated that banning TikTok could “Without TikTok, you can make Facebook bigger” and we can estimate the financial windfall for Meta from a TikTok ban could be in the billions per year.

Therefore, out of all companies, Meta may end up being the biggest unintended beneficiary of a TikTok prohibition in the United States.

Best regards,
Joel Litman & Rob Spivey
Chief Investment Strategist & Director of Research
at Valens Research

This analysis of Meta Platforms, Inc.(META:USA) credit outlook is the same type of analysis that powers our macro research detailed in the member-exclusive FA Alpha Pulse.