Talking Tech With Mark Mahaney: What’s Going on With TikTok?

Amanda Heckman: Hello and welcome to Manward's monthly tech roundup. I'm Amanda Heckman, Editorial Director here at Manward. And I'm joined today by Andy Snyder, the founder of all things Manward.

Hi, Andy.

Andy Snyder: Hello. Good to see you.

Amanda: Good to see you as well. And with us again is Wall Street tech veteran, Mark Mahaney. Hi Mark, thanks for joining us.

Mark Mahaney: Hey, Amanda. Hey, Andy.

Amanda: Today we're going to talk about TikTok. The social media platform is under fire in the US over privacy concerns and security risks. Given it's a Chinese owned company and we don't always get along with China. Biden has banned it from government devices, and the Senate has introduced legislation to give him power to ban it nationwide.

Mark, what should investors know about TikTok? What's going on there? And is there a precedent being said here?

Mark: Oh, well, that last question is a good one. I think there have been other situations that are somewhat akin to this. I'm thinking about what happened with Huawei. There was something also historically with China Mobile, but I'm sorry, I don't know the details. Now, this is obviously never happened before with a media asset. Ironically, Amanda and Andy, Western media companies assets have long been disincentivized or flat out barred from China. So yes, there's a reverse precedent here, but this is highly unusual. And I don't know what... I think the odds of an actual TikTok ban, if you'd asked me and if you'd asked the financial markets a year ago, they would've said less than 5%. That has clearly changed. You've got a pretty high profile influential sort of consensus centrist group of senators that are behind this new legislation.

And it's not just the US government. You've got plenty of states. I don't know, there's a handful of states and there may be more half a dozen that have banned TikTok from their state employee work phones. And there's a little bit of privacy issues as there is... And there are some issues around the impact that social media is having, particularly on youth. That's been a multi-year issue. And obviously that's not specific to TikTok. Facebook is faced a fair amount of criticism for that. Some of it warranted, probably some of it unwarranted, but there's something different here. And of course, the fact that it's a Chinese owned asset that's what really changed.

And you already mentioned that your intro kind of hinted at the whole issue, which is sometimes we get along well and sometimes we don't. And this is one of those times where there's a lot of political tensions. And so TikTok is kind of in the middle of this, and there's a real question about who owns the data, and whether Beijing, the Chinese Communist Party can dictate terms to TikTok and can gain access to the information that's in there, that TikTok has on its servers.

And there's a CFIUS case, which is the Committee for Foreign Investment in the US, which under President Trump announced that TikTok would have to... I'm sorry, ByteDance, the corporate owner based in China, would have to divest ownership of TikTok. And that there was an attempted sale, an incentivize sale, an induced sale, potentially the Microsoft, potentially to Oracle just didn't come through. So there's a CFIUS ruling that says that this asset needs to be divested. And CFIUS rulings almost always go through, they can take years, but they almost always go through. And so I'm been surprised myself that this is really become a major issue. And I think there's a real chance that TikTok gets banned in the US. I mean, I don't think it's a more than 50% chance, but it's a solid 25%, 30% chance, something like that.

And TikTok has been banned in other regions. It's been banned in India, and it's going under a lot of scrutiny in the European Union. So we're not the only ones. We, the United States people and government are not the only ones that are interested in all this.

Now, let me bring this all back and then I'll stop to investors. Snapchat shot up 10% on Monday on the news that this group of senators was going to introduce the legislation. It's Mark Warner out of Virginia that was going to co-lead this legislation introduced on Tuesday. And then the legislation was in fact introduced during the day on Tuesday, and Snapchat traded up a little bit more. This would obviously be very positive for that company, but also obviously be very positive for other names that have asset apps that are akin to TikTok. They're mobile video entertainment oriented, that's Meta known as Facebook and Instagram to you and me. And that's Google, especially with YouTube.

So then there's no question that TikTok has become highly popular. It's very entertaining. Maybe it's addictive, maybe not, but it's very entertaining. And so took the credit to TikTok, they really innovated on short form video in a way that there's 2 billion people around the world who can't be wrong, they really like this asset. And now, what then's happened is the forms and the features of TikTok have been copied, and I think, successfully by Facebook and by Snap, Pinterest, and YouTube. And so maybe the competitive advantage that TikTok has enjoyed is starting to be eroded anyway. But this sort of legislation or this sort of actions are certainly going to accelerate that and the positive derivatives off this. And what is an unusual circumstance are stocks like Meta, Google, and Snapchat.

Andy: Yeah. I think first of all, there's a growing industry of people that make their living off of TikTok. It's a small minority to the actual people on it, but there's a lot of people that have probably erroneously built their company on TikTok, built their revenue stream baseline. So that'd be interesting to see how they go. But I really like to look at Facebook, Google, the Instagram and what this means for them. I wonder how much of the fight, I wonder how much they're putting in or how many calls they have into Congress about this, and playing up the data side when it's really a domestic versus international competition kind of conversation.

So there's no doubt that domestic companies, Facebook, Google will win from this, and we can use data security international issues as a competitive advantage. So that'll be interesting to see how that plays out. I've long talked about the negative social impact of social media, so that'll be an interesting topic to watch with all this. But it's definitely a very cool story, not a cool story, but an in-depth story to watch and keep tabs on because it does say a lot about what's going on in the world just as this one story.

Mark: Well, when you come into tech and you come into tech and media, and need to come tech media and then social media, Lord, there's just so many different ways that... There's so many different issues that could get triggered. National security, social security, and I mean that in the social welfare, social goodness security. So just the minefields are there. And frankly, I'm not at all, I guess in hindsight we shouldn't be surprised that TikTok is seeing something like this. The point I once made about Facebook is Facebook is us, I mean Facebook has 200 million plus users in the US so most people are on it in some way or another, and they have a lot of ways to try to moderate the content. But there is just so many... There's just limits, and if you have just 1% bad actors on Facebook, well that's 2 million people.

So just the ability for a lot of content that probably shouldn't be on there to be up there. It's the minefield associated with social media and companies have to work really hard to clamp down on that. But I do think in this case of TikTok, I think that's the second order issue. I think the primary issue is national security. I think the one backdrop has sort of been lost in the process here is US companies, I was tracking Google when they got booted out of China, or they were told that all of their servers would have to be accessible by the Chinese government. Google refused to do that and locked down and closed its service in China. And the media companies in particular have always been locked out of what is a really large market, so there's always been a trade issue there. And now there's a security issue too. It's unfortunate, but that's the reality, and something we all have to deal with as an investors.

And again, one of my favorite stocks for this year, I've talked about it before with you, Andy and Amanda, is Meta for a variety of reasons. I think they're finally getting cost religion. I think there's a couple of things that can boost their revenue growth. I think they're recovering from some real undermining of their ad effectiveness because of the Apple privacy changes. This just adds just another little element to why I like Meta. I just think that it's hard for me to see how the trend that's working against TikTok is going to reverse, it may plateau, but it's not going to reverse. And then you have a little option with your Meta stock. If in fact TikTok gets banned, it is going to boost Instagram usage, it's going to boost Instagram revenue.

Amanda: It's going to be very interesting to see this play out over the next weeks and months. We'll end it there. And thank you both for coming and sharing your thoughts. And thank you all to her watching this month. And everyone take care. We'll see you next month.

Mark:Thanks, Amanda. Thanks Andy.

Andy: Thanks. See you.