Can TikTok bans breathe some life into social media stocks?

TikTok bans gather momentum

Yesterday’s session saw significant interest in US social media stocks as the US is set to follow the EU in banning some foreign technology companies including the popular TikTok app which is delivered by the Chinese-based ByteDance. The concerns driving this legislation are whether US user data could be accessed by the Chinese intelligence agencies. Last Tuesday, the EU parliament banned TikTok from its staff devices due to cybersecurity issues and is now banned across three major EU institutions and the EU parliament also put out a “strongly recommended” notice to all staff of deleting the TikTok app from their personal devices. The nervousness over data breaches is not a one-way street as Chinese authorities urged a couple of weeks ago state-owned enterprises to phase out using the big four accounting firms, which all from Western countries, driven by concerns of data security. These bilateral moves underscore the decoupling between China and Western countries across several key technologies.

Snap gained the most on upcoming US legislation bill

The upcoming bill legislating foreign technology caused US social media stocks to rally yesterday with Snap (+9.5%) gaining the most with the three other social media stocks were mixed; Meta (-0.2%), Alphabet (+1.6%), and (+1.1%). The reason for why Snap reacted the most positively is that TikTok is heavily used by young people which is also the target of Snap and if parents get more aware of the potential cybersecurity issues then usage of TikTok might switch to Snap. Google’s YouTube is another social media platform that could see a positive effect from TikTok bans. While social media stocks got a boost yesterday the 5-year performance across these companies has been below the overall equity market except for Alphabet highlighting an industry that has lost its growth dynamics and interest of investors.