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The TikTok drama is nearing its end now that Oracle Corp. (NYSE: ORCL) has won the bid for the coveted social media app, beating out Microsoft Corp. (NASDAQ: MSFT) and Walmart Inc. (NYSE: WMT). Shares of Oracle popped more than 7% higher on the news.
But does that make Oracle stock a buy?
With the U.S. government concerned around TikTok's parent company ByteDance collecting personal user data along with its relationship with the Chinese government, President Donald Trump recently ordered the company to sell its U.S. business.
But that doesn't mean Oracle is acquiring the company. As it looks right now, the high-profile deal will set up Oracle as the "trusted tech partner" of TikTok and not as an outright sale, which Beijing has opposed.
While review of the deal will need to go through the Committee on Foreign Investments in the United States (CFIUS) and then on to Trump's approval, the big question will be whether it's an opportunity for U.S. investors.
Here's what you need to know...
Why Oracle Stock Is a Wait-and-See
Last month, TikTok announced that it had grown its user base to 100 million monthly users in the United States, an 800% rise from January 2018. The impressive part of this is that 50 million are daily active users and are some of the most lucrative from an advertising standpoint. While the platform is not yet profitable, investors have seen how valuable social media platforms can be. And this asset is no different.
But Oracle's interest seems to be much different than Microsoft's. It is not necessarily interested in running the business itself - it's more interested in TikTok as a way to drive more business to its cloud-computing platform, the part of its business which has lagged its competitors, Amazon.com Inc. (NASDAQ: AMZN), Microsoft, and Google (NASDAQ: GOOGL).
Oracle made a name-brand push earlier this year with Zoom selecting it as its cloud infrastructure provider, and adding TikTok could bring in more name recognition to the platform. With TikTok and Zoom being two of the most heavily downloaded apps this year, these deals could help prove that Oracle can support fast-growing, bandwidth-intensive companies.
Partnering with TikTok could provide a halo effect around Oracle's cloud platform, as users' biggest concern is that the app will shut down. Globally the app has had over 2 billion downloads, so partnering with it could bring a significant amount of press.
While Oracle has made dozens of acquisitions over the last 20 years, it has never acquired or run a consumer-facing business. Bringing in TikTok could help change the narrative around Oracle's slowing growth and breathe new life into the company.
There is definitely a lot to think about with this deal, and with Oracle up against some of the largest and well-capitalized companies in the world, I would take a step back and wait until the deal terms become public before I invest. TikTok could provide a nice boost for Oracle, but there is a lot of risk here, especially if the deal is denied or ByteDance decides to shut down the app.
Three Stocks Even Better Than ORCL
Chief Investment Strategist Shah Gilani just held his first-ever stock-picking lightning round event - running through more than 50 stocks to tell you if they are stocks to buy or stocks to sell.
Dozens are overpriced and overhyped - you should ditch them ASAP.
But Shah says THESE three stocks are "screaming buys."
All three are trading at a discount... they're under-the-radar companies most people haven't even heard of... and they have massive tailwinds ready to send their share prices into the stratosphere.
To get the company names, tickers, and price targets for Shah's picks, go here now.
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About the Author
Alex Kagin is the Director of Technology Investing Research at Money Map Press. He has spent the last decade working in equity research, most recently with Energy Capital Research Group (ECRG), where he led technology stock research along with working as part of a team developing a customizable financial data platform for securities analysis.
Prior to joining ECRG, Alex spent 8 years at DeMatteo Research, a boutique primary research firm and broker-dealer servicing the institutional investment community. He managed the Tech, Media, and Telecom vertical where he spent time connecting with hundreds of tech executives and hedge funds to get the pulse of the market.
Alex has a B.S. in Economics from American University and previously held Series 7 and 63 security licenses.