Oracle Corp. faces financial repercussions due to a new law potentially banning TikTok in the U.S., as warned in a regulatory filing. The law signed by President Joe Biden could make it illegal to provide internet hosting services to TikTok without certain steps taken by the China-based owners. Oracle, which relies on TikTok as one of its largest cloud infrastructure customers, could lose a significant portion of revenue if unable to comply with the new law.
Analysts estimate Oracle’s annual revenue from TikTok to be between $480 million and $800 million, a substantial portion given that Oracle’s cloud infrastructure unit generated $6.9 billion in sales for the year ended May 31. The demand for artificial intelligence work has been driving growth in Oracle’s cloud business and contributed to a 34% gain in its shares this year.
Concerns about TikTok’s potential threat to national security have long been raised by U.S. lawmakers, as the app is required by China to share data with the government upon request. The law signed in April gives TikTok a 270-day deadline to find a buyer or face a ban in the U.S. TikTok has responded by suing to overturn the law, highlighting its efforts to isolate U.S. data from its Chinese parent company through “Project Texas.”
Oracle’s relationship with TikTok has been murky, as the company had initially considered a deal when the U.S. pressured ByteDance to sell the app to an American buyer in 2020. However, Oracle has not disclosed TikTok as a top cloud customer and has remained tight-lipped about the partnership. If TikTok were to be sold, replacing Oracle as a cloud provider would likely be a low priority.
Overall, Oracle’s financial results could suffer from the potential ban on TikTok in the U.S. as a significant revenue stream is at risk. Compliance with the new law could also lead to increased expenses for Oracle, impacting its earnings moving forward. Given the growth in its cloud infrastructure business, Oracle will need to navigate these challenges strategically to maintain its growth trajectory in the market.
Article Source
https://fortune.com/2024/06/24/tiktok-oracle-revenue-hit-investors/
