Oracle (ORCL) Wins Deal To Become TikTok’s U.S. Partner: UPDATE

By Amit Chowdhry ● September 13, 2020
  • ByteDance has reportedly picked Oracle Corporation (NYSE: ORCL) to be its U.S. technology partner for TikTok

9/14 UPDATE: Oracle has confirmed Secretary Mnuchin’s statement that it is part of the proposal submitted by ByteDance to the Treasury Department over the weekend in which Oracle is going to serve as the trusted technology provider. 

ByteDance, the Chinese parent company of social video app TikTok, has reportedly picked Oracle Corporation (NYSE: ORCL) to be its U.S. technology partner. As part of the deal, Oracle will take a significant stake in the business according to CNBC’s sources. ByteDance is not actually going to sell TikTok’s U.S. assets said Microsoft in a statement — which was also one of the parties in the bidding war.

The Trump administration forced ByteDance’s hand in pushing for a sale of TikTok’s assets by imposing a ban of the service by September 29. The administration cited security concerns as the reason for the banning of TikTok. But there is speculation that President Trump was upset about a group TikTok users setting up a prank, which reportedly caused a low turnout at a rally in Tulsa.

What may have incentivized TikTok to make a deal with Oracle is due to President Trump having a close relationship with Oracle founder Larry Ellison. Ellison reportedly hosted a fundraiser for Trump at his home in California. CNBC also pointed out that Catz was a member of President Trump’s transition team.

“ByteDance let us know today they would not be selling TikTok’s US operations to Microsoft,” said Microsoft in a blog post, which provides further evidence that Oracle was potentially the winner in the deal. “We are confident our proposal would have been good for TikTok’s users, while protecting national security interests. To do this, we would have made significant changes to ensure the service met the highest standards for security, privacy, online safety, and combatting disinformation, and we made these principles clear in our August statement. We look forward to seeing how the service evolves in these important areas.”

This past Thursday, Oracle CEO Safra Catz started the company’s quarterly earnings call with analysts by saying that they would not be making any comments regarding the press reports about TikTok.

“So there’s no need to ask,” said Catz.

It is rumored that Oracle was interested in doing a deal with TikTok through a partnership with General Atlantic and Sequoia Capital. Microsoft had partnered with Walmart to put together a potential deal.

Currently, TikTok generates revenues by showing ads to users scrolling through videos in the app. Microsoft and Walmart would have likely been interested in integrating their own ads into the feed if their deal went through.

It is believed that Chinese government regulators intervened with ByteDance making a deal with Microsoft. And it was reported that ByteDance wanted more of a limited agreement than what Microsoft was looking for.

Oracle runs a cloud computing operation that competes against Microsoft Azure, Amazon Web Services, and Google Cloud. It is likely that TikTok would tap into Oracle’s cloud computing services as part of the deal.

Disclosure: I own a small number of shares in Oracle and Microsoft.