This Move by Oracle Could Shake up the Social Media Stock Space

Oracle Corporation Acquisition of TikTok
@juuli.s via Twenty20

ORCL Just Became a Social Media Stock

In what has been an otherwise rather boring year in the social media stock space, a huge move has totally upended the status quo: Oracle Corporation (NYSE:ORCL) is no longer just a cloud stock, but now also lays claim to being one of the largest social media companies around.

That’s because Oracle stock has now received a boost in a big way via its reported deal to gobble up TikTok‘s U.S. operations.

Remember that TikTok, owned by Chinese company ByteDance Ltd., was seeking a buyer for its U.S. operations after it has been floated that the U.S. federal government would potentially ban the app. The reasoning behind the ban being that the company was acquiring the data of millions of American citizens, data that could then potentially be shared at any time with the Chinese government under the country’s strict cooperation (and, in some cases, coercive) mandates that force companies to share information with the government at its behest.

This created a bidding war of sorts between a variety of big-name tech companies, with Microsoft Corporation (NASDAQ:MSFT) being rumored to be among the top contenders for the hot, new social media app.

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But it is Oracle Corporation, known for its operations mainly in the cloud space, which is seemingly the winner, following initial reports.

Valuations of TikTok’s U.S. operations run as high as $25.0 billion, but sources say that this figure may see a decrease, as China has imposed its own regulations regarding technology exports. (Source: “Oracle is said to win deal for TikTok’s U.S. operations,” BNN Bloomberg, September 13, 2020.)

The result is that Oracle stock has now, by virtue of its TikTok acquisition (the details of which have yet to leak), instantly become a social media stock giant.

Consider that, with a valuation of roughly $175.0 billion pre-TikTok deal, ORCL stock pretty much becomes the de facto second-largest social media stock in the world, trailing only Facebook, Inc. (NASDAQ:FB).

This is a huge move that could radically shake up the social media market, depending on how Oracle stock follows this up.

A Big Social Media Stock Shake-up?

If the company, for instance, decides to put its powerful cash reserves to work in an effort to become a dominant player in the social media space (and use its already masterful knowledge of cloud technologies), then we could see Oracle stock realistically become a top social media stock.

What’s more, ORCL stock is already a pretty solid blue-chip company. It pays a healthy dividend and has a very solid business with little risk to consumers.

Consider that, in 2020, a year of scorching highs and devastating lows for so many companies, ORCL stock has seen a gain of about nine percent year-to-date.

Chart courtesy of StockCharts.com

That’s a compelling case for security in a time of nearly unprecedented market instability.

After all, consider that the politics surrounding the pandemic have yet to be sorted out. What I mean by this is that we have no idea if Congress and the White House are on their way with another bailout bill, which could mean further ruin for the stock market.

Conversely, another cash injection would go a long way towards stabilizing the market while also bolstering confidence. Not to mention that with so many Americans out of work and/or facing eviction in the economic fallout wrought by the COVID-19 pandemic, giving them relief would go a long way towards juicing the consumer market back to life, in turn giving new life to the stock market.

In other words, 2020 is a year when investors could use a little bit of stability in their lives. And Oracle stock has provided that for a long while now.

The addition of TikTok to the company’s portfolio, if the deal goes through, would be a huge boon. It exposes an already stable stock to an emergent market, while not loading up ORCL stock investors with the risk usually endemic to the industry. That’s because, while TikTok is big in the U.S., its size is small relative to Oracle stock’s larger cloud business.

But the upside is that TikTok has the ability to soar high. After all, it’s the hottest new social media platform among younger people, and that in turn makes it a hot target for investors.

Of course, social media stocks are notoriously volatile, as the consumer base is a fickle bunch, prone to swarming new apps in huge waves and receding just as quickly. That usually means that huge gains and deep losses could be felt in relatively short periods of time.

ORCL stock, however, could provide a nice line of stability, with its core business acting as a bulwark against the riskier aspects of the social media market, while the growth potential of TikTok provides the company with an avenue towards growth it has not had for years.

This is a very good marriage between two different industries. And it’s one that has instantly catapulted Oracle stock onto my tech stock list, if the company does close the deal.

Analyst Take

The social media stock space hasn’t really seen much action for several years now. Not since Snap Inc (NYSE:SNAP) went public have we seen a major move in the social media arena. TikTok, an unlikely contender to become public due to its Chinese ownership, has changed all that due to the political pressure for it to find an American partner.

Now investors have a chance to gain exposure to the hottest new social media app, all without having to sweat every day wondering if the kids will abandon this social media app as they have so many times in the past.

While it’s not quite the same as TikTok stock (Oracle stock is still going to get much of its value from its cloud business), ORCL is offering investors a chance to make some serious cash from the massive growth of TikTok without the usual severe risk that comes along with the industry. That’s an enticing combination, and one that investors ought to keep on their radar.