Oracle (NYSE:ORCL) acknowledged in its annual report that a U.S. ban on TikTok could hurt its business. Oracle is a provider of cloud infrastructure for TikTok, which has more than 150 million users in the U.S.
The tech company stated that if it could not provide its cloud infrastructure services to TikTok in the event of a ban, and if it “cannot redeploy that capacity in a timely manner,” its revenues and profits would be adversely impacted.
Why Is the U.S. Considering Banning TikTok?
Earlier this year, President Biden signed a bill that required ByteDance, the owner of TikTok, to sell the short-form video app within nine months (or a year with an extension) to avoid a U.S. ban. The U.S. has long been concerned about TikTok’s ownership and user data potentially reaching China.
As a result of U.S. concerns, ByteDance developed and implemented a plan with Oracle to provide cloud services that could help TikTok remain in the U.S. TikTok launched Project Texas to run its U.S. services on Oracle’s cloud infrastructure in the country. ByteDance stated that Oracle would be responsible for compiling the app and delivering it to third-party app stores.
How Valuable Is the TikTok Partnership to ORCL?
Oracle has not disclosed the impact of its financial ties with TikTok. However, according to a CNBC report citing Evercore analysts, TikTok is likely generating sales of $16 billion in the U.S. annually and could be spending between 3% and 5% of its revenue on cloud infrastructure. This could mean that TikTok is spending in the range of $480 million to $800 million on cloud infrastructure.
Interestingly, in FY24, Oracle clocked cloud infrastructure revenues of $6.9 billion.
Is Oracle a Buy, Hold, or Sell?
Analysts remain cautiously optimistic about ORCL stock, with a Moderate Buy consensus rating based on 13 Buys and 13 Holds. Year-to-date, ORCL has surged by more than 30%, and the average ORCL price target of $148.18 implies an upside potential of 5.9% from current levels.
