Oracle Warns That a TikTok Ban Would Dent Revenue and Profit

(Bloomberg) — Oracle Corp. warned investors that a new law potentially banning TikTok in the US threatens to hurt its financial results.

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The law signed by President Joe Biden in April “will make it unlawful to provide internet hosting services to TikTok” unless certain steps are taken by its China-based owners, Oracle wrote Thursday in a regulatory filing. “If we are unable to provide those services to TikTok, and if we cannot redeploy that capacity in a timely manner, our revenues and profits would be adversely impacted.” Compliance with the new law may also increase expenses, the company added.

TikTok uses Oracle’s cloud infrastructure to store and process US user data, and is considered by many Wall Street analysts to be one of the Austin-based company’s largest customers for that closely watched business. “Oracle could lose a sizable portion of revenue associated with hosting the bulk of TikTok’s US business,” Derrick Wood, an analyst at TD Cowen, wrote in April.

Oracle’s annual revenue from the popular video app may be in the range of $480 million to $800 million, estimated Kirk Materne, an analyst at Evercore ISI. The company’s unit that rents computing power and storage generated about $6.9 billion in sales in the year ended May 31. The growing cloud infrastructure business, fueled by demand for artificial intelligence work, has helped propel Oracle’s shares to a 34% gain this year through Friday’s close.

Oracle didn’t respond to a request for comment.

US lawmakers have long been concerned that TikTok poses a security threat to US users because China requires its companies, upon request, to share any national security-related data with the government. The law signed in April gives TikTok 270 days to find a buyer or be banned in the US, with some possibility of an extension.

TikTok has pushed back on these concerns, suing to overturn the law. As part of its defense in recent years, TikTok has invoked its work with Oracle to cordon off US data from its Chinese parent, ByteDance Ltd. The initiative, dubbed “Project Texas,” was named after the state of Oracle’s headquarters.

Still, Oracle has traditionally been mute on its relationship with TikTok — it doesn’t list the company among its flagship cloud customer successes. In 2020, when the US first pressed ByteDance to sell the app to a US buyer, Oracle was among those considering a deal. The company at that time declined to answer any questions about its relationship with TikTok.

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If TikTok is sold, replacing Oracle as a cloud vendor would likely be a very low priority, Materne wrote.

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