Across the United States, many people are still wondering whether TikTok will be banned in the country. Indeed, the popular content-creation app is facing an uncertain future after President Joe Biden signed a bill decreeing that ByteDance — the platform’s Chinese parent company — will have to either sell the platform or face a U.S. ban. But its not just teenagers who are hoping that a TikTok ban can be averted.
Oracle (NYSE:ORCL) has made it clear that such a policy would severely impact its bottom line. That’s because TikTok is one of the tech sector leader’s biggest customers. If it is compromised, ORCL stock could be as well. Shares closed in the red today as the fate of TikTok hangs in the balance.
What’s Happening With ORCL Stock?
Granted, ORCL stock didn’t fall by too much today, closing down by 0.5%. That’s not much of a decline. Even so, investors should be careful to evaluate what this means for the company. Oracle has enjoyed an excellent year, with year-to-date (YTD) gains of more than 33%. But in a U.S. economy without TikTok, the company would be forced to shoulder some losses.
One Wall Street bank provided an estimate as to exactly how much the TikTok ban would hurt Oracle. According to Morgan Stanley, the losses could range from $370 million to $1.3 billion. Oracle addressed this topic in its annual report:
“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.”
The company added that complying with these policies could lead to higher expenses, which could also negatively impact ORCL stock. But some Wall Street analysts are less concerned with the looming TikTok ban.
JPMorgan Chase analyst Mark Murphy speculates that a potential ban would likely not be a major problem this year but could become one further down the line. Meanwhile, UBS analyst Karl Keirstead believes that, while the ban would harm Oracle, it may not destroy the company’s cloud infrastructure prospects.
What It Means
It isn’t surprising that Oracle is highly concerned about the prospect of TikTok being banned in the States. But Keirstead is correct that the company’s cloud business is big enough to withstand losing one of its biggest customers. Oracle has other things going for it, such as lucrative partnerships with Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and OpenAI. As InvestorPlace contributor Vandita Jadeja reports:
“Once popular for database management, Oracle is now expanding its cloud business and has seen an impressive demand. Its cloud infrastructure revenue hit $2 billion, up 42% year-over-year in the recent quarter and the outstanding performance obligations soared 44% and stood at $98 billion. This shows the company’s strength amid the rising competition.”
While a TikTok ban would likely push down ORCL stock in the short term, the company is clearly strong enough to ultimately recover. What’s more, it’s also possible that TikTok finds a buyer in the U.S. and avoids the ban entirely.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
