BanningTikTok
What it means for the rest of the market
The likelihood of a US TikTok ban is higher than ever.
Last Thursday, the House of Representatives fast-tracked a bipartisan effort that could lead to Gen Z’s favorite app being banned in the US, and over the weekend, the House approved the bill.
The revised legislation ties TikTok’s fate to a foreign-aid package for Ukraine and Israel. The Senate passed its biggest procedural hurdle Tuesday afternoon in an 80-19 vote. The bill will get a final vote shortly, likely sending it to President Biden’s desk, where Biden said he’d sign it.
If it goes through, it would force TikTok’s Chinese parent, ByteDance, to separate from the app within a year or be banned in the States. This doesn’t necessarily mean a ban is imminent, but it means that the president will have a great deal of leverage to make the sale happen in the foreseeable future.
Supporters say the bill’s necessary to protect American data from the Chinese government. TikTok and other critics argue it would curb free-expression rights for 170M American TikTok users.
The Tik-ban saga’s long: US leaders have been trying to ban the addictive app since 2020. But now things are moving fast. Here are some companies that could be affected by a TikTok ban, based on how they mention the app in earnings transcripts and filings as either friend or foe.
Social media: Meta, Snap, and others
If the TikTok economy collapses, it’ll be a major win for rivals Meta, Google, and Snap, who each have TikTok copycats ready to step in (Reels, YouTube Shorts, and Spotlight). TikTok’s popularity among Americans has grown faster than any other social platform, and if it vanishes, its 170M US users would likely move to its rivals. TikTok’s often cited as a risk factor in social giants’ earnings:
Meta: “User growth and engagement are also impacted by a number of other factors, including competitive products and services, such as TikTok, that have reduced some users' engagement with our products and services.”
Snap: “We compete with other companies in every aspect of our business, particularly with companies that focus on mobile engagement and advertising. Many of these companies, such as Alphabet (including Google and YouTube), Apple, ByteDance (including TikTok), Meta (including Facebook, Instagram, Threads, and WhatsApp), Pinterest, and X (formerly Twitter), may have greater financial and human resources and, in some cases, larger user bases.”
Beauty: Elf, L’Oréal, Coty, Ulta, Clinique, and others
These days, beauty companies are heavily reliant on social media (especially TikTok) to gain viral traction for their products — from Clinique’s Black Honey Lipstick and Elf’s liquid filter foundation to Coty’s Kylie Cosmetics. If a ban happens, it could dent beauty marketing:
Elf: “We're one of the first beauty brands on TikTok, where we — our first hashtag challenge, I think had something like 3 billion views well before most people knew what TikTok was… So, our ability to go deep in a particular platform, be native in terms of how people are using it, is one of our key strengths.”
L’Oréal’s March report: “L’Oréal is no. 1 in influencer market share (+5.5 points compared to 2022 to the end of November 2023), boosted by strong leadership and increased TikTok.”
L’Oréal’s February earnings call: “There's like an appetite for beauty. And on TikTok is by far the number one category. And I think the number of video views have doubled in 2023. So, there is this appetite.”
Ulta: “In December, we surpassed 1 million followers on TikTok reinforcing our position as a social brand leader in beauty.”
…retail in general
Just like with beauty marketing, TikTok has played an important role in growth for Gen Z popular apparel brands like Revolve and Crocs, as well as old-school retailers like Target and Walgreens. It plays a key part in customer-acquisition strategies and is often cited as a growth driver on corporate earnings calls:
Revolve: “We had a really phenomenal quarter, in part driven by a TikTok Shop, that was really successful for us in the quarter.”
Crocs: “In August, we dropped our fourth Lightning McQueen Adult Clog with strong — with a very strong unveil on TikTok, garnering approximately 38 million views, our best-performing TikTok ever.”
Walgreens: “We had a TikTok influencer put something up about peeled mango gummies, and we can't keep them in stock now.”
Music: UMG, Sony, and Warner
Vertical dances and lip-sync vids are big business. Record labels have grown increasingly reliant on TikTok for the success of their songs, and are even tailoring tunes to what they think will go viral. Without that exposure, they could lose $$. But one record label said it could live without it: after TikTok and Universal Music Group failed to agree on royalty payments, TikTok removed all music from UMG artists like T. Swift and Drake. UMG’s focusing on other platforms:
UMG: “With regard to TikTok, we've disclosed that our former deal generated about 1% of total UMG annual revenue. Because other platforms in the social video category achieved much greater monetization, we're focused on accelerating our partnerships with YouTube, Meta, Snap and others and we look forward to updating you in the coming weeks ahead about exciting competitive developments and incremental opportunities emerging within the category.”
Warner Music: “We hope that UMG and TikTok come to a resolution and a good collaboration that's healthy for the ecosystem. To the extent that there's greater prominence on TikTok like greater prominence is a good thing. TikTok is a great marketing and promotion platform and tool.”
With the biggest hurdles cleared, we’re a vote away from it being basically just up to Biden as to whether these companies will have a whole lot more to talk about soon.
