Key points
- TikTok is at risk of being banned in the United States, where most of its users are located, leaving a significant gap in the market to fill.
- Meta and Alphabet are circling the market, ready to acquire new users and increase business. However, there can only be one.
- Wall Street asset managers and analysts think Meta is the winner, but Alphabet can be a hedge if they’re wrong.
- 5 stocks we like better than the Technology Select Sector SPDR Fund
The online economy is about to undergo another change soon. More and more influencers and advertising budgets have seen unprecedented opportunities in Bytedance’s emerging platform, TikTok; however, its days in the US market are now running out. After passing a bill that would force Bytedance to spin off TikTok to avoid giving up U.S. user data to the Chinese government, a five-month window to decide will spur a new set of winners.
The truth is that TikTok is winning in all statistics against its main competitor, Instagram. AS Meta Platform Inc. NASDAQ: META realizes the opportunity it may have if TikTok abandons the arena, the company could increase its research and development (R&D) budgets to right its ship.
On another note, Alphabet Inc. NASDAQ:GOOGL sees an opportunity in short-form content as its YouTube platform now hosts “Short.” Which of these two gets the lion’s share of potential TikTok users looking for a new home? Only the market can respond.
Meta has his spoon ready
In 2022, an average of 17.6 million hours per day were spent watching Instagram Reels. This compares to more than ten times the average of 197.8 million hours spent on TikTok each day.
The math is a double factor that affects user count and time spent by each user. The average TikTok user spends about 52 minutes a day on the platform. In comparison, the statistic drops to 30 minutes a day on Instagram.
Although Instagram has more than 2 billion monthly active users, more than 1 billion more than TikTok, calculations show that people prefer to stay on TikTok longer.
All of this matters because if TikTok were deleted from the list of apps available in the US market, many users would need to find a new home on the next player down the food chain. It appears to be Instagram, but this trend may already be priced into the stock price today.
Markets don’t wait for news to appear; they move their money and predict tomorrow’s newspaper. This is why Meta stock is trading at 97% of its 52-week high and at a price-to-earnings (P/E) ratio of 25.5x. Its valuation makes it 17% more expensive than Alphabet’s 21.8x P/E valuation.
Is Google the better game?
Wall Street doesn’t think it is. Going by the way analysts have expressed their opinions on both Meta and Alphabet, you too can probably guess who the likely winner of this battle will be.
Analysts at Wells Fargo & Co. New York Stock Exchange: WFC they see a $144 per share price target for Alphabet, set in March 2024. Meanwhile, the same analysts at Wells Fargo saw a $609 valuation for Meta in the same month. These two price targets translate to a 2.3% downside in Alphabet and a 20% upside in Meta.
Now that the choice is clear among those who make a living predicting the future price of stocks, it’s time to see if the market agrees. Since there is a 17% premium in Meta’s P/E over Alphabet’s, the bottom line is that there must be a good reason for the willingness to overpay.
While both stocks have seen institutional buying, the trend is clearly in favor of Meta over Alphabet. It could be their way of backing both horses in case they are wrong because Vanguard Group favored its Meta position by adding 1.7% to it in March, while only 1.3% for Alphabet.
Another respected Wall Street firm is Fisher Asset Management. This had its own opinions on Meta versus Alphabet. By increasing his holdings in Meta by 8.1%, he made his preference known, choosing instead to add just 3.3% to Alphabet.
It seems that, for these institutions, Meta is the one who will emerge victorious from this debacle, while Alphabet will act as a hedge in case they are wrong in this decision.
What can you do?
Some argue that TikTok has sales and marketing capabilities for businesses that Instagram doesn’t have. They may be right, but they also forget that Meta owns WhatsApp. This app supports store and business pages within the same Instagram environment.
Therein lies the hidden opportunity identified by these analysts and asset managers. While this is still speculative thinking, it is not far from the reality that today’s online economy – and nomadic workers – could adopt. After all, 197.8 million daily hours of consumer activity will be filled.
After all, while Alphabet has performed in lockstep with the rest of the tech stocks, Meta has outperformed the stock SPDR fund for the selected technology sector NYSEARCA: XLK by as much as 106% in the last 12 months. Price action is often right, and the same is true on Wall Street.
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