Oracle Wins Bid to Duet with TikTok's U.S. Operations

On Sept. 13, various news sources, including The Wall Street Journal, revealed that wide-moat Oracle Corp. ORCL won the bid for TikTok’s U.S. operations, beating Microsoft. Oracle did not divulge any of the news firsthand, leaving much of the details of Oracle’s win in the dark. However, reports suggest Oracle will be TikTok’s partner in the U.S., which implies it is unlikely there will be a complete sale of the U.S. operations from TikTok’s parent company, ByteDance, to Oracle. We continue to view a complete Oracle-TikTok acquisition as more unfitting than not, given Oracle’s enterprise focus, but the idea of a partnership relationship is much more appealing, in our view. It is not immediately clear to us if this deal will satisfy the administration’s national security concerns--but Oracle’s close ties to the Donald Trump administration could help the review process, which the Committee on Foreign Investment is expected to undergo this week. We will be closely monitoring this situation for more details on the particularities of the partnership. However, with little definitive detail on the structure of the deal, we are maintaining our $50 fair value estimate--despite Oracle's stock up 4% on the news.

We continue to believe that a complete sale of U.S. TikTok assets to Oracle will have little top-line synergies, given Oracle’s enterprise focus and TikTok’s attention toward the consumer. We think Oracle’s designation as TikTok’s cloud infrastructure provider would be the main benefit for Oracle, as Oracle Cloud remains well behind AWS, Azure and Google Cloud. In this case, we think a partnership rather than an outright sale is much more beneficial to Oracle. A partnership would allow Oracle to gain TikTok as a major customer of Oracle Cloud, giving the U.S. government a sense of ease that Oracle will be securitizing TikTok’s U.S. data, all while Oracle does not have to invest the cash required to own the business outright.

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