Implementing a TikTok ban could bring notable advantages for Meta Platforms, but it also underscores a substantial threat.
In recent times, the major challenge for Meta Platforms (Meta's stock dropping by 3.59%) has been TikTok. Meta's response to this has been its Instagram Reels, allowing users to easily browse short videos, similar to TikTok. If TikTok gets banned in the U.S., Meta could stand to gain on various fronts: More users shifting to Instagram, and more advertising revenue.
This situation could open up fantastic growth opportunities, but it also brings up a significant long-term risk for the company: Increased competition.
Could Meta see a surge in revenue?
A TikTok ban might be enforced as early as next month. This would mean the app won't be available for download from app stores. However, users who have it installed on their phones already can still technically use it, although without updates, it may stopped functioning properly over time.
The U.S. government, due to security concerns related to Chinese government involvement in the app, wants TikTok to be sold to a company outside of China. A deadline is set for January 19, 2025. If TikTok is not sold by then, it could be swiftly removed from app stores.
For Meta, this would effectively eliminate a significant competitor in the U.S. market. With fewer ways to reach U.S. audiences, advertisers might turn to Meta's social media applications, potentially leading to increased advertising revenue.
Meta's business is already flourishing. Its Family of Apps segment (which includes Facebook, Instagram, Messenger, and WhatsApp) generated $115 billion in sales during the first nine months of 2024, marking a year-over-year increase of over 22%. Faster growth could make Meta's stock even more attractive next year.
The TikTok ban highlights a significant concern for Meta investors
While eliminating a major rival would be great news for Meta, the stock's surge in value also underscores an underlying concern: Its applications may not be able to withstand fierce competition. A recent survey of U.S. teens shows that just 32% use Facebook, while 23% use WhatsApp. The percentage rises to 61% for Instagram, but it's still lower than TikTok's 63%. Even with the threat of a ban, TikTok remains more popular among teens.
Meta's strategy often involves heavily copying other platforms. This can help it catch up with new or better apps, but it also means it may be vulnerable to new threats. Even copying competitors hasn't always led to success. Meta launched Threads in 2023, a platform similar to X (formerly Twitter), but it's not resonating with younger audiences either, with just 6% of teens using it, compared to 17% who use X.
Outside of Instagram, Meta has struggled to win over young audiences. How it does with this demographic can be a good predictor of its future performance, as many of these users may remain on their preferred social media platforms for years. Companies like Reddit and Roblox, which are working on unique advertising opportunities, will offer advertisers more options to target young audiences, even if TikTok is banned. This could pose a significant challenge for Meta.
Is Meta Platforms stock a good investment?
As of Monday's close, Meta Platforms stock has surged by more than 76% in 2024. While the optimism around a TikTok ban looks like a given, it's not enough to make Meta a no-brainer buy.
Meta's stock is trading at more than 29 times its trailing earnings, but this multiple may increase further if economic conditions slow down next year and companies scale back on advertising spending. The social media stock is at an all-time high, and with perhaps too much optimism priced into its valuation, it might be wise to hold off on investing in it today, as a correction could be overdue.
Its lack of innovation and reliance on copying features are reasons why I'm not overly optimistic about Meta's long-term performance. I'm not convinced that Meta will be a top choice for advertisers in the future, as Meta's platforms could struggle amidst greater competition. Its high valuation should provide investors with even more of a reason to be cautious with the stock today.
Given the potential TikTok ban and its impact on advertising revenue, Meta might consider significantly investing in its platforms to maintain user engagement and attract more advertisers. This could involve improving features, enhancing user experience, or even developing new innovative tools.
The uncertainty surrounding TikTok's future and Meta's reliance on advertising revenue highlights the importance of diversifying investment strategies. While Meta's current performance is impressive, from a financial perspective, it might be wise to consider other investment options with less reliance on a single platform's success or regulatory decisions.
