Oracle Cautions TikTok Ban Could Negatively Impact Revenue and Profit

Oracle Warns Investors About Potential Financial Hit from TikTok Ban

Oracle Corp. has issued a warning to investors about the potential financial fallout from a new law that might ban TikTok in the US. The legislation, signed by President Joe Biden in April, would make it illegal to provide internet hosting services to TikTok unless its China-based owners take specific actions, according to a regulatory filing by Oracle. The company indicated that if it cannot continue providing services to TikTok and fails to redeploy its capacity swiftly, its revenues and profits would suffer significantly. Additionally, compliance with the new law may lead to increased expenses.

TikTok relies on Oracle’s cloud infrastructure for storing and processing US user data, and many Wall Street analysts consider TikTok one of Oracle's major clients in this sector. Derrick Wood, an analyst at TD Cowen, mentioned that Oracle could lose a considerable portion of revenue linked to hosting a significant part of TikTok’s US operations. Kirk Materne, an analyst at Evercore ISI, estimated that Oracle’s annual revenue from TikTok could range between $480 million to $800 million. For context, Oracle’s unit that provides computing power and storage generated roughly $6.9 billion in sales in the fiscal year ending May 31. This burgeoning cloud infrastructure business has played a pivotal role in boosting Oracle’s shares by 34% this year up to Friday’s close.

US lawmakers have long expressed concerns that TikTok may pose a security threat to American users, citing that Chinese law requires companies to share any national security-related information with the government upon request. The newly signed law gives TikTok 270 days to find a new owner or face a ban in the US, albeit with a possibility for an extension. While TikTok has contested these concerns by suing to overturn the law, it has also highlighted its work with Oracle as part of its defense strategy. The initiative, termed “Project Texas,” is aimed at keeping US data separate from its Chinese parent, ByteDance Ltd.

Despite this, Oracle has been notably silent about its partnership with TikTok and has not identified the company among its major cloud customer successes. In 2020, during the initial US pressure on ByteDance to sell TikTok to an American buyer, Oracle was one of the potential buyers. However, the company then refrained from providing any specifics about its relationship with the video app. If TikTok manages to sell its US operations, switching away from Oracle as a cloud vendor would likely be a very low priority, Materne noted.