Snap and Meta could benefit from TikTok's potential ban in the U.S.

After a tumultuous 2022, investors have been waiting for signs of a rebound in Meta, Snap, and other U.S. digital media companies. This week, they received some unexpectedly optimistic news.

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In a vote on Wednesday, the U.S. House Foreign Affairs Committee voted to advance legislation that would allow President Joe Biden to ban TikTok, the viral video app owned by China's ByteDance that has been taking market share from several social media giants.

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The Meta stock rose by 1% on Wednesday, while Snap's share price remained the same.

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Laura Martin, an analyst at Needham, told that the implications are great for any company that has been losing share of the market to TikTok in the past," she said. If the ban is ultimately enacted, it is estimated that Meta's Facebook, Snap, and Google's YouTube could all be "huge beneficiaries" if the ban is ultimately implemented.

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With a sputtering economy pulling down the online advertising market in 2022, TikTok's impact in the U.S. has been particularly notable, as the app has experienced a meteoric rise in popularity.

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It is expected that TikTok will surpass a billion monthly users by 2021. There are 67% of teens in the United States use TikTok, and 16% report that they are on TikTok almost constantly, according to a survey conducted by Pew Research Center in August 2022. It has been estimated that TikTok controls 2.3% of the worldwide digital ad market, which places it second only to Google (including YouTube), Facebook (including Instagram), Amazon, and Alibaba when it comes to digital advertising revenue.

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In spite of the fact that TikTok's parent company is based in China and is privately owned, there have been concerns about data privacy issues surrounding the service. Several governors have removed TikTok from state computers - including those at public universities - as part of a bipartisan spending bill passed by Congress in December, and several states have banned the app from government devices. It was in January that Senator Hawley, a Republican from Missouri, renewed his call for a complete nationwide ban.

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According to a TikTok spokesperson, "by banning TikTok in the United States, we would be banning American culture and values from being exported to the billion-plus users of our service globally," the company stated on Wednesday. It is disappointing to see this rushed piece of legislation move forward, despite its considerable negative impact on the free speech rights of millions of Americans who use and love TikTok and who are going to be adversely affected by this legislation."

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Despite the fact that legislation that was introduced on Tuesday is a step in the right direction, lawmakers still have a long way to go before they can implement a real ban. Assuming that this bill passes the Republican-controlled House, then the Democratic-majority Senate will have to consider some version of it, which will be a challenge, based on the opposition that has already been expressed by some Democrats, which makes the process even more challenging. If the bill were to pass the Senate, President Biden would still have to decide whether he wanted to veto it or sign it into law.

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It is not the first time that TikTok has faced challenges from U.S. officials, as former President Donald Trump announced that he intended to ban the app by executive action in 2020.

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In an attempt to keep TikTok from being shut down by Trump, ByteDance looked into possible spin-offs from the app to keep it from being shut down. ByteDance forged an agreement with Trump that included partnerships with both Oracle and Walmart, who would both become investors in TikTok.

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Martin said that despite the fact that those deals failed, it is possible this time around that the app could be purchased. If that were to occur, TikTok might be weakened as a competitor, and might go through a period of uncertainty, but "it wouldn't just disappear and be shut down," Martin said.

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Among the companies likely to benefit the most from a U.S. ban on TikTok is Meta, according to Andrew Boone, a JMP analyst. In recent months, Facebook has invested millions of dollars into its TikTok rival Reels, which has yet to figure out a way to generate revenue that's as effective as the core newsfeed.

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The company stated during its fourth-quarter earnings call that it expects the Reels product to reach revenue neutrality by the end of the year or at the beginning of 2024. During the last year, there has been a more than double increase in video plays on Facebook and Instagram.

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According to Boone, if TikTok were to go away there would be a lot more consumption of Instagram Reels were to go away, he said in an interview. There is also potential for Snapchat's Spotlight, which was introduced in 2020, and YouTube Shorts, which was released in 2021, to benefit as well.

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It was a rough year for all three platforms in 2022. During the past three quarters, Meta shares lost two-thirds of their value due to the company's declining revenue for three consecutive quarters. Snap's stock dropped 81% as growth dropped into the single digits, and the company opted not to provide a forecast for two consecutive periods, resulting in the stock plummeting 81%. There was an 8% drop in YouTube advertising revenue in the fourth quarter, compared to the same period a year ago, which was below analyst expectations.

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In many circles, it hasn't been well received when apps attempt to copy TikTok.

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A few months ago, Instagram CEO Adam Mosseri posted a video on his YouTube channel explaining the changes he was making to the social media platform after celebrities like Kylie Jenner and Kim Kardashian slammed it for “trying to be TikTok.”

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Almost 140,000 people signed a petition urging the company to "make Instagram Instagram again" after a post calling on the company to do so garnered over 1.6 million likes. Mosseri made an announcement a month later that he would be moving from San Francisco to London to help Meta lure users away from TikTok.