TikTok’s loss is Meta’s win
An Appeals Court on Friday upheld a law that would force TikTok owner ByteDance to sell the popular short-form video app or see it banned throughout the country. The law doesn’t specifically ban TikTok but blocks app stores like Apple’s (AAPL) App Store or Google’s (GOOG) Play Store from distributing it unless ByteDance divests itself from the social network.
While the decision is a setback for TikTok, it’s not the end of the story. ByteDance is expected to appeal the law to the Supreme Court, which will make the ultimate call on the matter. If the law ultimately moves forward, it would be a huge blow to TikTok content creators, advertisers, and the app’s 170 million users.
But one company will undeniably benefit from a TikTok ban: Mark Zuckerberg’s Meta (META).
The tech giant is not only TikTok’s largest competitor but also the closest mainstream social media app with a similar user base and feature set. Meta designed Reels, which Zuckerberg has repeatedly talked up during the company’s earnings calls, as a means of combating the rise of TikTok.
Instagram introduced Reels in 2020, positioning it as a way for users to explore more of the content available on the photo- and video-sharing app. Since then, Meta has used AI to further tweak its recommendation feed, making Reels ever more compelling and ensuring users not only try out the feature but continue to scroll through video after video, just as they do on TikTok.
The moves are paying off too. During Meta’s Q1 earnings call in April, Zuckerberg said that Reels usage makes up 50% of the time users spend on Instagram. And during the company’s Q3 earnings call in October, CFO Susan Li said that 60% of Reels’ recommendations come from original content, which is exactly what gets people to stick around and keep scrolling.
Meta doesn’t break out exactly how much revenue Reels contributes to the company’s bottom line, but Li previously stated that the feature is a positive contributor to Meta’s overall revenue.
With Reels performing well, TikTok content creators will likely move over to the service if their app of choice is ultimately banned in the US. Users that follow those creators would then follow suit and advertisers along with them, ultimately helping to boost Meta’s revenue.
Shares of Meta jumped 2% Friday.
Meta certainly isn’t the only TikTok rival that could benefit if the app is banned. YouTube Shorts could also get a boost, which would similarly bring more advertising dollars to the Google-owned (GOOG, GOOGL) short-form video service.
The TikTok ban law spawned out of national security concerns related to the company’s parent company ByteDance and its ties to the Chinese government. US officials fear that the Chinese government could force TikTok to spy on American users or use the app to spread pro-China propaganda.
