A potential U.S. ban on TikTok may significantly impact Oracle’s revenue, as the software giant acknowledged in its annual report released on Monday.
This development follows President Joe Biden’s April bill requiring ByteDance, TikTok’s Chinese owner, to sell the platform within nine months to avoid a ban in the U.S.
TikTok’s relationship with Oracle
Oracle provides critical cloud infrastructure for TikTok, which boasts over 150 million U.S. users. The company’s reliance on Oracle’s services means that any disruption could adversely affect Oracle’s financial performance.
The company stated that an inability to provide these services to TikTok, coupled with the challenge of redeploying that capacity promptly, could negatively impact its revenues and profits.
Concerns over TikTok’s Chinese ownership and data security have persisted since 2020, when then-President Donald Trump pushed for a sale or divestiture of TikTok’s U.S. assets.
This led to Oracle joining ByteDance’s proposal to the U.S. Treasury Department, aiming to provide cloud services to keep TikTok operational in the U.S.
Project Texas and financial implications
To address U.S. security concerns, TikTok launched Project Texas, an initiative ensuring that U.S. user data is stored and managed on Oracle’s cloud infrastructure within the country. Oracle also took on the responsibility of compiling the app and delivering it to third-party app stores.
Despite these measures, the bipartisan legislation passed this year demands the sale of TikTok to a U.S. entity.
Following this, TikTok filed a lawsuit arguing that the mandate violates First Amendment free speech protections.
The financial implications for Oracle are substantial. Although the company has not disclosed specific financial details regarding its relationship with TikTok,
Evercore analysts estimate that TikTok’s U.S. sales could be around $16 billion annually.
If TikTok spends 3% to 5% of its revenue on cloud infrastructure, Oracle could be earning between $480 million and $800 million from this partnership. For the fiscal year, Oracle’s cloud infrastructure revenue totalled $6.9 billion.
Broader impact and future prospects
The potential sale of TikTok has attracted interest from various parties, including real estate investor Frank McCourt and former Treasury Secretary Steven Mnuchin.
No deal has yet been finalised. The uncertainty surrounding TikTok’s future in the U.S. continues to pose a risk for Oracle, which relies on the revenue generated from its cloud services for the social media giant.
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