TikTok Ban Would Affect Other US Businesses’ Revenue

Posted: June 26, 2024

Oracle has warned that a potential U.S. ban on TikTok could negatively impact its revenue and profit. This concern arises from President Joe Biden’s recent bill demanding that ByteDance, TikTok’s parent company, sell TikTok within nine months, or within a year if an extension is approved, to avoid a TikTok ban in the U.S. TikTok’s Chinese ownership has been a longstanding issue due to worries about user data being accessed by China.

Oracle provides cloud infrastructure for TikTok, which has over 150 million users in the U.S. The company stated in its annual report that losing the ability to serve TikTok could adversely affect its financial performance. “If we are unable to provide those services to TikTok, and if we cannot redeploy that capacity in a timely manner, our revenues and profits would be adversely impacted,” Oracle noted.

The debate over TikTok’s ownership began in 2020 when former President Donald Trump pushed for a sale or divestiture of TikTok’s U.S. assets. This led to deal discussions with Microsoft, and subsequently, Oracle became part of ByteDance’s proposal to provide cloud services to keep TikTok operational in the U.S.

In response to these pressures, TikTok initiated Project Texas, aiming to run its U.S. services on Oracle’s cloud infrastructure located domestically. Oracle is also tasked with compiling the app and delivering it to third-party app stores. Oracle CEO Safra Catz has previously highlighted the strong relationship between Oracle and TikTok.

The recent bipartisan legislation and Biden’s signing of the bill demanding TikTok’s sale have led TikTok to file a lawsuit, arguing that the law violates First Amendment protections. Despite interest from figures like real estate investor Frank McCourt and former Treasury Secretary Steven Mnuchin, no sale deal has been finalized.

Oracle has not disclosed its financial arrangements with TikTok. However, Evercore analysts estimated in April that if TikTok generates $16 billion in annual U.S. sales, it could be spending between 3% and 5% on cloud infrastructure, translating to $480 million to $800 million. Oracle’s total cloud infrastructure revenue for the fiscal year was $6.9 billion, as highlighted in its latest quarterly results.

TikTok has not yet responded to requests for comment on this matter. The TikTok ban update has created significant uncertainty for Oracle, as the tech giant braces for potential impacts on its financial health should the ban come into effect.