Oracle warns that a ban on TikTok would reduce revenue and profits

(Bloomberg) —Oracle Corp. has warned investors that a potential new law banning TikTok in the United States threatens to hurt its financial results.

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The law signed by President Joe Biden in April “will make it illegal to provide Internet hosting services to TikTok” unless certain actions are taken by its China-based owners, Oracle wrote in a regulatory filing Thursday. “If we are unable to provide these services to TikTok and cannot redeploy this capacity in a timely manner, our revenue and profits would suffer. » Compliance with the new law could also increase expenses, the company added.

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

Oracle’s annual revenue from the popular video app could be between $480 million and $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 revenue in the fiscal year ended May 31. Growing cloud infrastructure activity, fueled by demand for artificial intelligence work, helped propel Oracle shares to a 34% gain this year through Friday. close.

Oracle did not respond to a request for comment.

U.S. lawmakers have long feared that TikTok poses a security threat to American users because China requires its companies, upon request, to share any data related to national security with the government. The law signed in April gives TikTok 270 days to find a buyer or risk being banned in the United States, with the possibility of an extension.

TikTok pushed back against those concerns by suing to overturn the law. As part of its defense in recent years, TikTok has cited its work with Oracle to block U.S. data from its Chinese parent company, ByteDance Ltd. The initiative, dubbed “Project Texas,” takes its name from the state of Oracle’s headquarters.

Yet Oracle has traditionally remained tight-lipped about its relationship with TikTok — it doesn’t list the company among its flagship cloud customer successes. In 2020, when the United States first pressed ByteDance to sell the app to a US buyer, Oracle was among those considering a deal. The company then refused to answer any questions about its relationship with TikTok.

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

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