4 Social Media Stocks Set to Gain as TikTok Ban Looms

Key Points

• The U.S. may ban TikTok by January 19, 2025, unless ByteDance sells its U.S. operations, impacting 170 million American users.
• Chinese officials might sell TikTok’s U.S. arm, with Elon Musk as a potential buyer, reshaping the digital economy.
• A ban or sale could boost U.S. platforms like Meta, Alphabet, Reddit, and Spotify by capturing TikTok’s users and ad revenue.

The U.S. government is intensifying its efforts to address national security concerns surrounding TikTok. A Supreme Court decision is expected to uphold a law requiring ByteDance, TikTok's Chinese parent company, to divest its U.S. operations by January 19, 2025, or face a nationwide ban. In response, TikTok has announced plans to shut down its app in the U.S. if the ban takes effect, which would impact approximately 170 million American users.

Reports suggest that Chinese officials are exploring the possibility of selling TikTok’s U.S. operations to a non-Chinese buyer, with Elon Musk being floated as a potential candidate. This development could have significant implications for the digital economy and the technology sector.

If TikTok is banned or sold, U.S.-based platforms like Meta Platforms NASDAQ: META, Alphabet NASDAQ: GOOGL, Reddit NYSE: RDDT, and Spotify NYSE: SPOT may stand to benefit. These companies could capture a share of TikTok’s substantial user base and potentially see increased engagement and advertising revenue.

As the situation unfolds, with ongoing legal challenges and negotiations, investors should closely monitor these developments for opportunities in the tech sector. The forced sale or ban of TikTok could reshape the online market landscape in the coming months.

The Dominance of Leading Social Media Platforms Continues to Grow

According to recent measures by Statista, as of April 2024, the leaders in the social media market share shouldn’t come as a surprise. Measured through monthly active users (MAUs), the leader was Facebook with 3 billion, followed by YouTube with 2.5 billion and Instagram with 2 billion.

This is also where most of today’s business is done; Facebook serves as its own marketplace, charged with payment systems, marketing tools, and the ability to run advertising campaigns and other strategies. When it comes to YouTube, the trend remains there as well, in the sense that businesses and individuals can have a production team make high-quality videos to then migrate an audience to their own websites or other traffic sources, turning views into sales.

Instagram is essentially interchangeable with YouTube. The only major difference is that Instagram caters to shorter content, where businesses can make their “elevator pitches.”

This is where Meta and Google dominate the market, and Wall Street knows all about it.

As of October 2024, analysts at Pivotal Research decided to keep their Buy rating on Google stock and also placed a $225 price target on the company.

To prove these views right, the stock would have to stage a rally of up to 21.5% from where it trades today, not a common expectation for a $2.2 trillion behemoth.

Then the same applies to Meta Platforms stock, as analysts from the UBS Group also kept their Buy rating on the stock with a $719 price target as of October 2024 as well.

This view, which hasn’t changed since then from UBS, calls for up to 16% upside from today’s stock price, which already staged a one-year 86.1% rally.

Now, a new development could help these names gain even more market share: the Chinese-based platform TikTok, which has up to 1.5 billion MAUs. The United States government is back to pursuing a ban of the platform, stating that it is giving China access to private data and intelligence within the population.

It would be safe to assume that TikTok's 1.5 billion MAUs could make their way into the next best thing, YouTube “Shorts” and Instagram “Reels,” boosting profits and reach for both Google and Meta.

These are the safe ways to play the social media space, but other high-reward market areas come from the exchange of a little bit more volatility.

High-Growth Potential: Double-Digit Upside in Emerging Social Media Platforms

The surge in active users on Reddit and Spotify, combined with emerging monetization opportunities, has prompted Wall Street analysts to issue upgrades and boost valuations for these platforms.

Even after a massive 138.1% rally over the past 12 months, Spotify stock is ready to stage another double-digit rally in the coming quarters.

At least that’s the expectation of those at Canaccord Genuity Group, which reiterated a Buy rating as of December 2024 alongside a $560 share price target.

This new boost would call for up to 19% upside from where Spotify stock trades today, a view that will probably keep an uptrend as the company delivers more quarterly expansions in user count and monetization avenues.

When it comes to Reddit, institutional investors at FMC LLC decided to boost their positions by 302.8% as of November 2024, bringing their net holdings to a high of $801.4 million today, or 6.9% ownership in the company. One reason for the buy could be the upside called for by analysts at Wells Fargo.

As of December 2024, their latest view was an Overweight rating in the stock, this time calling for a $206 share price target for the name. This positioning and view on the company would imply a net rally of up to 27.5% from where it sits today, even after an impressive 161.2% rally over the past 12 months.