Sparks: TikTok faces ban; Tesla sees the light ⚡️

Welcome to Sparks, your weekly breakdown of some of the most interesting market news.Here’s what sparked our interest this week:

• TikTok must be divested, or leave, says US Senate
• Tesla refocuses on cheaper cars after dismal earnings
• NYSE weighs up 24/7 trading

Time’s up for TikTok ⏳

The clock is ticking ‌for the app that took the world by storm.

This week, the US Senate overwhelmingly passed legislation giving ByteDance, the owners of TikTok, roughly nine months to divest the US assets of the app, or face a nationwide ban. President Joe Biden signed the legislation into law on 24 April.

If TikTok hasn't crossed your radar or graced your screen yet, you might consider yourself lucky... But seriously, where have you been? Once written off as a silly dance-video fad, the app has transformed into one of the most dominant forces on the internet — becoming the fastest app in history to grow past a billion users. And now, its influence is even a cause of geopolitical tension: lawmakers in the US are concerned that China could access their citizens’ data, or spy on them, using the app.

TikTok CEO Shou Zi Chew has said he expects to win a legal challenge against the new legislation, boldly stating, “Rest assured — we aren’t going anywhere.” The move also comes amid widespread suspicion of technology: last week, Apple said China had ordered it to remove Meta Platforms’ WhatsApp and Threads from its App Store in China over Chinese national security concerns.

While the outcome remains uncertain, if TikTok is banned or divested in the US, some companies will gain, and some will lose. Instagram and Facebook — both owned by Meta Platforms — stand to be the biggest winners, according to projections from Bernstein Research. While Oracle, the cloud software giant that hosts TikTok’s service in the US, will likely feel a blow.

The numbers

• $600 million to $650 million — Estimated annual revenue for Oracle from hosting TikTok's service in the US, making the company a significant loser in the event of a TikTok ban
• 55%-60% — The slice of TikTok's US ad revenue expected to be drawn by Meta, according to Bernstein Research analysts. 25% is projected to be captured by YouTube
• 170 million — The number of TikTok users in the US

It’s looking up ⛅️

Can you hear that? It’s the sound of Tesla investors breathing a sigh of relief.

The EV pioneer’s shares trended upwards in the second half of this week, despite a dismal earnings report that revealed a 55% plunge in first-quarter profit, when compared to the same quarter in 2023. Investors found solace in Elon Musk's announcement on Tuesday of a renewed focus on "more affordable models" during the company's earnings call.

Musk's renewed commitment to mass-market vehicles, which could go on sale by the end of the year, has given investor confidence a shot in the arm. This strategic shift aims to revive sales and counterbalance a stock rout that's drained over $300 billion from Tesla's market value this year. The company has seen its stock plummet by 42% this year through Tuesday’s close, making it the worst performer in the S&P 500 Index during 2024.

The announcement comes at the end of a turbulent month for Tesla, marked by layoffs affecting over 10% of its global workforce and a recall of over 4,000 Cybertrucks due to accelerator defects. On top of this, the company is seeking shareholders' re-approval of a $56 billion compensation package for Musk, and faces stiff opposition from some significant shareholders.

Tesla shares surged 14% shortly after the earnings report, marking their largest intraday jump since October 2021.

In other news 🤓

Some other sparks that have been flying this week:

• Cabin pressure — Boeingreported its first quarterly revenue decline in seven quarters on Wednesday, but still exceeded analyst projections that were lowered after a door on an Alaskan Airlines flight blew out mid-air back in January 2024. Boeing's CEO, Dave Calhoun, also hinted at a potential acquisition of key supplier Spirit AeroSystems in the second quarter, despite ongoing negotiations with rival Airbus. Boeing's quarterly revenue stood at $16.57 billion, slightly higher than the expected $16.23 billion. However, both Boeing and Spirit shares lost altitude following the announcement. Moody's downgraded Boeing's credit rating to the lowest investment grade, citing ongoing commercial airplane challenges, with expectations of persisting headwinds at least until 2026.
• Play fair — The UK's antitrust watchdog, the Competition and Markets Authority (CMA), is turning its attention to the investments made by tech giants Amazon.com Inc. and Microsoft Corp. in artificial intelligence startups — the latest in growing global scrutiny of tech giants and AI technology. Specifically, the CMA announced on Wednesday that it’s assessing whether Amazon's $4 billion collaboration with AI firm Anthropic poses a threat to competition in the UK. The CMA is also examining Microsoft's partnerships with Mistral and Inflection AI, particularly following the mass migration of Inflection AI's CEO and most of its staff to Microsoft.
• Party people — The NYSE is weighing up 24/7 trading, and getting market participants to weigh in on the idea, as regulators consider the exchange's application to extend its hours round-the-clock. The survey, led by the NYSE's data team, reflects growing interest in trading big names like Nvidia and Apple even in the wee hours. Inspired by the non-stop action in crypto markets and the pandemic-induced surge in retail trading, the idea is gaining steam. While other markets offer all-day trading, stocks have been lagging behind. If New York is The City That Never Sleeps, then surely the stock market should be up all night as well?

Next week 🗓️

Earnings reports are expected from Apple, Amazon, and Eli Lilly.

That’s all for this week!