On Thursday, Canaccord Genuity analysts responded to the signing of a bill by President Biden that could lead to a ban on TikTok in the United States unless its parent company ByteDance divests the app. The legislation, signed on Wednesday, presents a twelve-month ultimatum for the divestiture. ByteDance is anticipated to legally challenge the new law, potentially initiating a lengthy legal battle.
The analysts from Canaccord Genuity believe that while the future of TikTok in the U.S. market remains uncertain, this development could be beneficial to other companies in the social media and digital advertising sector.
They highlighted that the uncertainty might deter advertisers from TikTok in the short term, and a potential ban or forced sale of the app, excluding its algorithm, could have positive long-term effects on user engagement and advertising budgets for TikTok's competitors.
According to Canaccord Genuity, Meta Platforms, Inc. (NASDAQ: NASDAQ:META), Snap Inc . (NYSE: NYSE:SNAP), and Alphabet (NASDAQ:GOOGL) Inc. (NASDAQ: GOOGL, GOOG) are poised to gain from the situation. The firm suggests that Meta could potentially attract the most significant portion of the time and advertising spend that might shift away from TikTok. They also note that any advertising budget reallocation to Snapchat could be particularly impactful for the platform.
Furthermore, the analysts expect that YouTube, owned by Alphabet, could benefit from increased engagement. Still, they also acknowledge that due to the extensive size of Google's overall advertising business, the relative impact on Alphabet may be less pronounced compared to the others. The ongoing developments will be closely watched by investors as the market adjusts to the potential changes in the social media landscape.
InvestingPro Insights
In light of the recent legislative developments that could see TikTok facing restrictions in the U.S., Snap Inc. (NYSE: SNAP) appears to be in a position that may intrigue investors. According to InvestingPro data, Snap has a market capitalization of $18.82 billion and is trading at a high Price/Book multiple of 7.73, indicating a premium valuation by the market despite not being profitable over the last twelve months.
The company's gross profit margin stands strong at 54.1%, reflecting its ability to retain a significant portion of revenue after the cost of goods sold has been accounted for.
Two notable InvestingPro Tips for Snap include its liquid assets, which currently exceed its short-term obligations, suggesting a degree of financial flexibility. Moreover, while Snap operates with a moderate level of debt, it is worth noting that analysts predict the company will be profitable this year. This could be a pivotal factor for investors considering the potential uptick in user engagement and advertising budgets that may arise should TikTok's presence in the U.S. become constrained.
For those seeking further insights, InvestingPro offers additional tips on Snap, which could help in making a more informed investment decision. Interested readers can unlock these insights and take advantage of a special offer by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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