Currently, ByteDance’s TikTok divestment fiasco is still in limbo. After President Joe Biden signed legislation to force TikTok to either divest or face a ban in the United States, ByteDance filed a lawsuit alleging violation of the freedom of speech.
Originally, the deadline for the sale was put around January 2025, however, the presence of the lawsuit has now put that timeline in jeopardy, and it’s unknown if the sale would even happen if the case succeeds. One of the other challenges in selling TikTok is keeping its algorithm. China considers the algorithm necessary for national security and is unlikely to allow its transfer to a U.S. buyer. The algorithm is crucial to TikTok’s success, and acquiring TikTok without it would take away from its original value.
Yet, should the company sell TikTok off to keep the platform alive, several stocks could jump at the prospect of acquiring the most successful social media platform in the world.
Walmart (WMT)
With help from Oracle (NYSE:ORCL) to provide its cloud capabilities, Walmart (NYSE:WMT) had agreed to acquire TikTok in 2020-2021 with a joint 20% ownership and enter into commercial agreements to provide e-commerce capabilities onto TikTok. However, the deal was off after ByteDance lost interest since Biden took a slower time and investigated national security issues again, lessening the pressure for ByteDance to find an operator for its US operations.
Currently, Walmart is the second-largest e-commerce platform in the U.S. The industry trend is now combining e-commerce with social media to unlock growth. This is because 69% of consumers trust influencers over information coming directly from a brand. Moreover, data shows that 64% of GenZ consumers use TikTok for information, and nearly 10% prefer it over an online search. The power in short-form content is probably why Amazon (NASDAQ:AMZN) is building out its version of TikTok that links right onto its pages.
Walmart certainly has the cash for this acquisition, with over $9 billion on its current balance sheet, and generates over $15 billion a year in free cash flow. Furthermore, its large size will enable it to secure debt cheaply for the acquisition.
Rumble (RUM)
Rumble (NASDAQ:RUM) is an international video-sharing platform denoted as free speech YouTube. It offers users a less-restricted information base and is opening itself to a wider range of users.
This stock is a risky investment that only pays off if the sale goes through–the issue is that RUM is not making much money and is running low on cash. As of quarter 1, 2024, the cost of goods sold was about $32 million, while revenue was only $18 million. On top of this, its user base is not growing; as of Q1 2024, it is at 50 million MAU, down significantly from its Q4 23’ of 67 million MAU. Without a growing user base, they cannot pay sustainably for their content creators.
The only hope left is their offer to buy TikTok from ByteDance after legislation passed forcing them to sell. In early May, Rumble expressed interest in joining a consortium to acquire and operate TikTok in the United States. But there are some issues. The biggest issue is that Rumble is not offering to buy TikTok stocks and technology, only to serve as its cloud technology partner, so they need a primary buyer to join the consortium, which, as of now, still needs to materialize.
Rumble’s business could survive by securing the cloud servicing gig. However, there is only a tiny chance that this could happen and I am not confident in Rumble’s ability to do so. However, the market was extremely bullish and sent the stock up 18% after this was announced earlier this year, meaning its stock would still soar if the deal goes through.
Snap (SNAP)
With a potential TikTok sale, Snapchat (NYSE:SNAP) would see its Spotlight feature, a direct competitor with TikTok, taking market share especially if its algorithm is taken out after the sale. In 2023, it was already expected that Snapchat would take over TikTok as the fastest-growing platform. In addition, it’s already beating TikTok by usage in the Gen Z group and is the most popular Gen Z platform
Spotlight is growing fast with a 125% YoY in watch time in Q1 2024. This is helping to contribute to a 21% year-over-year (YOY) increase in revenue. The company also saw EBITDA rise to $46 million from $1 million in the prior year, and while SNAP hasn’t seen a profitable quarter since Q4 2021, the company is improving; it reported a net loss of $305 million in Q1 2024 compared to $329 million in Q1 2023.
Snapchat should be on investors ‘ watchlists with the potential to gain market share in short-video content and improve financials among other acquiring TikTok stocks.
On the date of publication, Michael Que did not have (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.
The researchers contributing to this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
