Oracle recently revealed in its annual report that a potential ban on TikTok in the United States could have a negative impact on its business. As a provider of cloud infrastructure services for TikTok, which has over 150 million users in the US, Oracle could see a decline in revenue and profits if it is unable to continue providing its services to the app in the event of a ban. The company stated that the inability to redeploy its capacity in a timely manner could further aggravate the situation.
The US government has expressed concerns over TikTok’s ownership and the possibility of user data being accessed by China. Back in August, President Biden signed a bill requiring ByteDance, TikTok’s parent company, to sell the app within nine months to avoid a ban in the US. In an effort to address these concerns, ByteDance proposed a partnership with Oracle to provide cloud services to TikTok, allowing the app to continue operating in the US. The Texas Project was launched to run TikTok’s US services on Oracle’s cloud infrastructure within the country.
While Oracle has not disclosed the financial impact of its ties to TikTok, analysts estimate that TikTok could be generating approximately $16 billion in sales in the US annually, with a significant portion allocated to cloud infrastructure expenses. This suggests that TikTok could be spending between $480 million and $800 million on cloud services, which could be beneficial for Oracle’s revenues. Notably, Oracle reported cloud infrastructure revenue of $6.9 billion in FY24.
Despite the potential risks associated with the TikTok partnership, analysts remain cautiously optimistic about Oracle’s stock, with a Moderate Buy consensus rating based on 13 Buy and 13 Hold recommendations. Oracle’s stock has increased by over 30% so far this year, and the average target price of $148.18 implies a 5.9% upside potential from the current levels. Overall, the future outlook for Oracle remains positive, although uncertainties related to the TikTok situation could impact its performance in the coming months.
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