Morgan Stanley on who wins the most if TikTok is banned or blocked
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Companies that already have short-form video platforms in place should benefit the most from any TikTok ban, according to Morgan Stanley. The fate of the ByteDance-owned short-form video platform remains uncertain as passage of either the DATA Act or RESTRICT Act could give President Biden authority to ban it in the U.S. Lawmakers have said the China-based parent company needs to sell its stake because of concerns the app poses a national security threat. "While still highly volatile, in our view, recent TikTok headlines and political activity ... increase the debate around the possibility of a potential ban or block of some nature in the U.S.," said Morgan Stanley analyst Brian Nowak. "It should be noted that there are both material Constitutional and technical hurdles that would need to be overcome before that would be possible." A ban would leave about 95 million users in the U.S. who spend around 90 minutes per day — or 53 billion hours annually — searching for an alternative. While Nowak said many media forums could benefit from a ban, he sees the most upside for Meta , Alphabet and Snap , because of their short-form video alternatives. TikTok CEO Shou Zi Chew testified before Congress last week , when all three stocks highlighted by Morgan Stanley as potential beneficiaries closed the week higher. Meta: The best potential Facebook and Instagram parent Meta has the greatest potential upside from a ban, Nowak said, with every 10% of TikTok time captured adding around 1% to 2%, or 20 cents, to 2024 earnings per share. By capturing half of TikTok's time, Meta would add 7%, or $1, to 2024 earnings per share. All figures assume monetization will occur at half the rate of the beneficiaries' core business in the U.S. In Meta's case, Nowak assumes it could get around 25 cents per hour of a daily active user's time because Facebook and Instagram record 49 cents. A key area for any newfound engagement would be Instagram Reels, a short-form video platform embedded within Instagram. The platform has long been viewed as a smaller competitor to TikTok. Meta could add $1 billion or more, which translates to around 1%, to 2024 revenue for every 10% of TikTok's time captured. Every 10% of TikTok's time acquired by the platform also translates to a 2% addition to the stock's target price, according to Nowak. Nowak's $250 price target implies Meta could rally 24.6% from where it closed Tuesday. By comparison, Meta shares have already rallied about 67% so far this year after plummeting 64% in 2022. META GOOGL,SNAP mountain 2023-03-20 The three stocks since last week began Alphabet: More helpful to ads than shares Taking TikTok's market share could help advertising revenue at Google parent Alphabet, Nowak said, but will likely have a less noticeable impact on share value. For every 10% of TikTok's time won, Nowak said Alphabet would add $425 million in revenue to YouTube. That would mean around 1.1% added to YouTube's total 2024 ad revenue, but only 0.2% to Alphabet's. This also assumes incremental engagement flow from TikTok to YouTube Shorts, Alphabet's main TikTok competitor, and 50% monetization compared with YouTube's normal 16 cents per daily active user's hour. If YouTube Shorts captured 50% of the time coming from TikTok, Nowak said that would result in $2 billion more in ad revenue, a 6% increase for YouTube. But he said that would only translate at a five-times revenue model to $1 extra dollar on Alphabet's current $135 price target, since paid search trends are far more important to Alphabet than growing YouTube, he said. Still, the stock could see upside ahead as Nowak's price target implies shares could rally about 34% over the next year from where they ended Tuesday. Alphabet has gained almost 15% so far this year after slumping 39% in 2022. Snap: Are expectations overblown? For Snap, every 10% of TikTok time it picked up could result in $440 million more in incremental revenue, or 8% more than expected, from 2024 ad revenue at half of the 17-cent hourly daily active user rate. A 10% win could also increase the target share price of $7 by 18%, or $1.30. Like Meta and Alphabet, the company has a competing platform called Spotlight that could absorb the audience. But Nowak said the company is likely to gain around 5% of TikTok's time due to its smaller size. And that target price reflects downside from where the stock currently trades, which Nowak said implies investors may be pricing in overly optimistic expectations for how much a TikTok ban could help Snap. His $7 target price implies Snap will drop about 37% over the next 12 months from Tuesday's close. The stock has gained almost 24% so far in 2023 after collapsing 81% last year. — CNBC's Michael Bloom contributed to this report