Oracle’s proposed alliance with TikTok doesn’t resolve all of the concerns of Trump administration officials that the Chinese-owned video-sharing app poses a risk to US national security, according to a Bloomberg report.
The report comes as President Donald Trump is preparing to decide whether to sign off on Oracle’s bid (ORCL). However, addressing those remaining issues could pave the way for US approval, according to the report. The companies are still working to make their case with the government.
Meanwhile at a press conference on Wednesday, Trump said he was not happy about what he was hearing about the bid, but added that he would be briefed on the details Thursday morning. “I’m not prepared to sign off on anything,” he said.
Trump imposed a Sept. 20 deadline to decide whether to approve a proposal by TikTok’s Chinese parent ByteDance Ltd. to sell or restructure the video app’s US operations as a new standalone company or face a ban. As part of the proposed TikTok deal, Bytedance would retain majority ownership and in turn Oracle would get with a stake in the business and a role as a key technology partner.
According to the Bloomberg report, terms of the proposed deal would give Oracle full access to TikTok’s source code and updates to make sure there are no back doors used by the company’s Chinese parent to access data on the video-sharing app’s 100 million American users.
US officials are concerned that after a potential transaction, ByteDance could still have access to user data from its nearly 100 million users in America, the report said. The officials remain wary about the proposed new ownership structure and how much influence that would give China over the company.
The newly formed TikTok would be headquartered in the US and would hire an independent board approved by the US government. In addition, the standalone company would also have oversight by a third party, which would report to the US government and provide continuous audits, reports and protocols for handling any incidents that may arise, according to the report.
Oracle shares have gained over 14% so far this year, with the average analyst price target of $61.22 implying 1.3% upside potential lies ahead.
Needham analyst Jack Andrews this week assigned a Hold rating on the stock, citing many unanswered questions regarding the TikTok deal, including deal structure, due diligence regarding IP, data privacy and security, and probability of approval by regulatory authorities .
“In order to assess the potential financial impact, which we envision at a minimum would include hosting TikTok’s services/apps on Oracle Cloud Infrastructure (OCI), we attempt to estimate the cost of hosting TikTok’s Daily Active User (DAU) by using the cloud hosting costs for SnapChat’s (SNAP) DAU as a proxy,” Andrews wrote in a note to investors. “If the underlying costs to serve temporary pictures is comparable to videos, we believe the partnership (hosting fees only), may represent an opportunity of ~$35 million per quarter (or 0.4% of FY21E revenue).”
“However, given the lack of clarity on the deal and further pending news flow, we await more details to assess the partnership’s full impact,” the analyst added.
Overall, Wall Street analysts are cautiously optimistic on the stock. The Moderate Buy consensus breaks down into 7 Buys, 13 Holds and 1 Sell. (See ORCL stock analysis on TipRanks).
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