The TikTok Deal

After months of pressure from the White House over security concerns, a deal has finally been made over Chinese social media app TikTok. The joint agreement has Oracle and Walmart taking the reins for the U.S. portion of the popular app.

This deal is good news for consumers who have been worried about a ban of the TikTok app since President Donald Trump threatened it in August 2020.

“Oracle will become our trusted technology provider, responsible for hosting all U.S. user data and securing associated computer systems to ensure U.S. national security requirements are fully satisfied,” TikTok Global announced on Twitter.

The deal will see Walmart take on the commercial aspects of TikTok’s U.S. business, while Oracle will provide technology for the app.

“We are currently working with Walmart on a commercial partnership as well. Both companies will take part in a TikTok Global pre-IPO financing round in which they can take up to 20 percent cumulative stake in the company. We will also maintain and expand Global’s headquarters in the U.S., while bringing 25,000 jobs across the country,” read TikTok’s statement.

Walmart has tentatively agreed to purchase 7.5 of TikTok Global and provide e-commerce, fulfillment, payments, and other omnichannel services.

“We are excited about our potential investment in and commercial agreements with TikTok Global,” said Walmart in a statement.

Walmart’s role in controlling the commercial aspects may prove very lucrative for the company. The digital data from the app will help Walmart better target its inventory investments in the United States. Additionally, there is a prospect for personalized ads to be created in relation to the videos users watch.

“For Walmart this is a golden jewel that falls in their lap to monetize this massive installed base. It’s mirroring what we have seen in China around e-commerce and QVC-like cross pollination of the platform,” explained Wedbush analyst Dan Ives via email to Yahoo Finance.

The deal would see Oracle become TikTok’s secure cloud provider. Data privacy for the 100 million American TikTok users will be established by moving all American data to Oracle’s Generation 2 Cloud data centers. According to Oracle, the servers are the most secure cloud data centers in the world.

Yahoo Finance reports that Oracle and Walmart will get a combined 20 percent stake in TikTok Global for $12 billion.

In addition to a stake in TikTok Global, the deal also means that TikTok will be headquartered in America. Governor Greg Abbot has made a pitch for Texas to be TikTok’s new home. Additionally, four out of the five board members for the company would be Americans.

TikTok was owned by the Chinese company ByteDance. Following national security concerns from the U.S. over the app’s data collection practices, the company said it would separate itself from its Chinese parent company and become TikTok Global.

TikTok’s user base has been growing significantly after the last few months. After the threat of a ban on the app, downloads rose 12 percent on Sept. 18 alone. According to CNBC, the app has been downloaded over 2 billion times since launching in 2016. CNN reports there were 315 million downloads in the first three months of this year alone.

According to Bloomberg, the user base is not the only part of TikTok that is growing. So are the profits. The company has more than doubled its revenue from $7.4 billion in 2018 to $17 billion in 2019. Bloomberg also claims that ByteDance has a cash pile of $6 billion.

Following President Trump’s initial threat to ban the app over security concerns in August, TikTok had been in talks with Microsoft to purchase its U.S. portion. However, the deal eventually fell through.

This deal has received the green light from the Trump administration to continue as of now. Despite the President’s approval of Oracle and Walmart’s acquisition of part of TikTok, not all of President Trump’s original demands have been met.

“I have given the deal my blessing — if they get it done that’s great, if they don’t that’s okay too. I approved the deal in concept,” President Trump told reporters on the White House South Lawn.

The agreement does not deliver on the original demand for a total sale of TikTok to be wholly controlled by Americans. It also does not eliminate China from the company’s mix.

Under the initial terms of the deal, ByteDance still controls 80 percent of TikTok Global. It was reported by The New York Times that ByteDance’s chief executive, Zhang Yiming, will be on the company’s board.

However, President Trump may still try to claim a majority American ownership because of ByteDance backed by American investors. ByteDance is a privately held company which already had American investors before this deal. According to CNBC40 percent of ByteDance is owned by U.S. venture capital firms. The current arrangement leaves room for the Trump administration to pass off the deal as creating majority ownership by U.S. investors.

The deal also has the companies paying $5 billion in new tax dollars to the U.S. Treasury. President Trump has claimed that the companies would be contributing to an education fund for the same amount.

“Some news media reported that TikTok will set up a $5 billion education fund in the United States. We would like to clarify that it was also our first time hearing about the news,” ByteDance said in a statement.

There are no updates on if the deal will cause any interruptions to the platform or what the significant changes will be. More updates will likely come out about the agreement as issues such as the education fund come closer to a resolution.

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