It has been hard going keeping up with the Trump-TikTok saga, but the knotty affair has reached an untying of sorts.
As the clock drew nearer to the expiry of the original September 20 deadline for TikTok owner ByteDance to divest its U.S. operations to an American entity, it appears a solution was found.
Oracle (ORCL) and Walmart (WMT) will collectively acquire a 20% stake in TikTok Global, of which software giant Oracle will own 12.5%. Per Oracle’s announcement, TikTok will become an Oracle Cloud Infrastructure (OCI) customer.
RBC Capital analyst Alex Zukin is in no doubt what the deal can do to Oracle’s balance sheet.
“We believe the 12.5% minority investment, which Bloomberg reported last night may be valued at $60B (implying $7.5B investment from Oracle) is a wise use of capital for what may be the defining social media asset of a generation,” the 5-star analyst said. “Furthermore, we see the deal as a shot in the arm for OCI, which coupled with recent reference customers (Zoom, 8×8, etc.), is highly strategic, as it has the ability to accelerate growth in a segment that is important for the future of Oracle.”
That “shot in the arm” Zukin talks about could be worth a lot of money. Zukin estimates that over the next 4 years the opportunity for expansion in the IaaS (Infrastructure as a Service)/PaaS (Platform as a Service) space could be incrementally worth up to $200 billion.
“If Oracle were to win just 5% of this incremental opportunity,” Zukin notes, “total revenue growth would be mid-high single digits.” This is the sort of growth Oracle has not experienced over the last decade.
As for TikTok’s growth potential, Zukin counts the social app as a “unique asset.” According to recent Sensor Tower data, the app already boasts roughly 1 billion MAUs (monthly active users), which equates to 2 to 3 times the size of Twitter, Pinterest, and Snapchat.
Yet estimating Instagram, Facebook and YouTube all currently have over 2 billion MAUs, Zukin argues “the potential for additional growth remains high.”
What’s more, with levels of engagement far exceeding most of its rivals, the potential for monetization is vast, too. The analyst believes “TikTok’s combination of scale and engagement has the potential to result in best-in-class monetization on a per user basis over time.”
So, down to the nitty gritty what does it all mean for investors? The TikTok gift results in a new rating as Zukin upgrades ORCL shares from Sector Perform (i.e. Hold) to Outperform (i.e Buy). The price target gets a bump, too, moving from $60 to $68. The new figure implies upside of 12% could be in the cards over the next 12 months. (To watch Zukin’s track record, click here)
While by no means bearish, the Street takes a more measured approach. Based on 8 Buys, 11 Holds and 1 Sell, the stock has a Moderate Buy consensus rating. Given the average price target is $61.69, the analysts expect modest upside of 1.5% from current levels. (See Oracle stock-price forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
