META

Does the TikTok Ban Make Meta Stock a Buy?

Over the last few weeks, members of Congress have been quarreling over legislation that would ban social media app TikTok in the U.S.

At a high level, concerns over user security on the China-owned app have lawmakers at a regulatory crossroads. As some media pundits and economists speculate on TikTok's future, it's natural to wonder if competing social media platforms could benefit from a ban.

Let's dig into what is going on from a legislative perspective, and assess why I see Meta Platforms (NASDAQ: META) as a big winner regardless of TikTok becoming banned in the U.S.

Is TikTok banned in the U.S.?

There are a lot of details surrounding the so-called TikTok ban.

First, on April 20 the House of Representatives passed a bill stipulating a ban of TikTok unless its parent company -- Chinese start-up ByteDance -- agrees to sell the asset to a U.S. business within the next year.

Naturally, TikTok is employing hefty lobbying efforts to squash the bill. Given the rift between TikTok and U.S. lawmakers and the Senate's quick passage of the bill on April 23, it might seem like the company could be going away soon.

However, there's more to unpack here. Now that Congress has passed the bill, President Biden will need to sign the bill into law and the company still has time to sell its business.

So, with all of that said, "no," TikTok is not banned in the U.S., and although the bill landing on President Biden's desk so quickly could show urgency, there is no guarantee that the platform will be.

A sunset over Capitol Hill

Image Source: Getty Images.

How could the TikTok ban help Meta?

The social media landscape is ripe with competition. Alphabet owns video-sharing platform YouTube -- which is the world's second-most visited website. Furthermore, applications from Snap and Pinterest are highly popular among Millennials and Gen Z demographics.

Nevertheless, Meta has a strong pulse in the social media realm. The company owns Facebook, Instagram, and WhatsApp. According to data compiled by Semrush, Facebook and Instagram are the world's third and fourth most-visited websites, with WhatsApp rounding out the top 10.

Given Meta's dominant presence on the Internet, it's not surprising to learn that the company reaches nearly 4 billion people worldwide across its apps each month. It's this depth that has advertisers eager to broadcast across Meta's various platforms.

However, what investors need to understand above all else is that advertising is a highly cyclical market.

Considering that TikTok has an estimated 1 billion active users worldwide -- and 150 million in the U.S. alone -- advertisers are surely keen to allocate some budget spend to the platform.

TikTok's growth, both within and outside the U.S., threatens Meta. Although the company has a larger user base, the rising popularity of TikTok could spell trouble as advertisers move away from an overreliance on Meta's various platforms for additional channels, such as TikTok.

Is Meta stock a buy now?

Buying Meta stock based on the outcome of the TikTok bill is short-sighted. Should the bill be signed into law, many unknowns could still impact Meta.

For example, it's not clear who would bid to acquire TikTok. Moreover, it's not yet known what would be included in the sale as it pertains to intellectual property (IP). Given these variables, it's hard to assess what this could all mean for Meta.

Rather, the overarching theme here is that if TikTok were to be outright banned in the U.S., Meta would likely benefit by gobbling up advertising dollars that would otherwise have gone to competitors. While this theory warrants merit, it's still speculative and not yet a proven outcome.

Instead, I'd encourage investors to consider Meta's investment prospects for reasons beyond TikTok. For starters, the company recently declared a dividend and increased its share buyback program by $50 billion.

Moreover, Meta has been clear about its ambitions related to artificial intelligence (AI). The company is developing its own chips to complement existing data insights gathered from its various social platforms.

To me, Meta is a compelling opportunity regardless of a TikTok ban. In fact, a contrarian might suggest that the rising popularity of TikTok in the U.S. could end up being a long-term benefit for Meta, as increased competition often breeds new innovation.

While I think the chatter surrounding TikTok is worth monitoring, I wouldn't base an investment decision purely on this news. For now, I see the idea of a TikTok ban as more of a clickbait headline-grabber.

Investing in Meta should be rooted in the company's financial position and its ability to execute its innovation roadmap -- with or without TikTok in the picture.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Spatacco has positions in Alphabet and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Pinterest. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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