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Oracle (ORCL), TikTok Ink Cloud Data Storage Deal in the U.S.

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Oracle ORCL and TikTok, a popular China-owned video app, recently announced an agreement per which the latter will store data from users in the United States on Oracle’s servers.

The announcement coincided with a BuzzFeed report that claims TikTok employees in China have controlled and routinely accessed private data from U.S. TikTok users between September 2021 and January 2022.

TikTok has been trying to calm concerns that its Chinese parent or even the local government could gain access to the huge amount of data it has on Americans and other users. TikTok and Oracle have worked for months on a plan to manage the social media company's U.S. user data, including developing procedures for Oracle to audit TikTok's handling of the data.

The Oracle-TikTok deal has been in the works since 2020, when TikTok had announced that Oracle would become a minority owner of the service after a U.S. national security panel backed by President Donald Trump ordered ByteDance to divest TikTok under a national security risk.

By March 2022, ByteDance and Oracle renewed negotiations for Oracle to take over TikTok’s U.S. data storage, this time to allay the Biden administration’s privacy concerns.

Oracle set out to win the TikTok data storage contract, leveraging the U.S.-China antagonism, to expand its flagging data storage business. TikTok has changed the default storage location of U.S. user data and 100% of U.S. user traffic is being routed to Oracle Cloud Infrastructure.

Oracle Corporation Price and Consensus

Oracle Corporation Price and Consensus
Oracle Corporation Price and Consensus

Oracle Corporation price-consensus-chart | Oracle Corporation Quote

Oracle’s Autonomous Database Strength to Boost Cloud Push

Oracle, currently carrying a Zacks Rank #3 (Hold), is making every effort to enhance the functionalities of cloud-based applications, thus encouraging adoption. Shares of the company are down 22.3% year to date compared with the Zacks Computer and Technology sector’s decline of 32.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Oracle’s Cloud services and license support revenues (64% of total revenues) in the fourth quarter of fiscal 2022 increased 3% year over year (up 7% at cc) to $7.61 billion. The upside can be attributed to continued strength in the Fusion, Autonomous Database and Oracle Cloud Infrastructure (“OCI”) services.

The next-generation autonomous database launched by Oracle, supported by ML, is witnessing steady traction. Product introductions, including new OCI managed services, are likely to boost growth in this category. The autonomous database in Gen2 public cloud infrastructure is witnessing a healthy uptake.

Oracle’s latest Exadata Cloud@Customer service offering is gaining traction among on-premise customers. The latest wins include Deutsche Bank, the City of Atlanta and the State of Kansas.

Storing data from over 100 million US TikTok users will be a boon for Oracle, which was once one of the world’s biggest data hosts but has struggled to catch up with rivals, Amazon AMZN, Microsoft MSFT and Alphabet GOOGL owned Google after they made early breakthroughs in the cloud computing domain.

Amazon is the leading provider of cloud infrastructure as a service to enterprise customers. The expanding customer base of AWS, driven by its strengthening cloud offerings will continue to aid Amazon's dominance in the global cloud space.

Even more encouraging is the fact that AWS generates much stronger margins than the traditional retail business, which should remain a positive for Amazon’s profitability as it continues to grow in the mix.

Microsoft is benefiting from the momentum in Azure and impressive growth in clientele, triggered by the coronavirus-led work-from-home and online-learning wave and telehealthcare trends. Furthermore, it is well poised to expand the total addressable market through the acquisition of GitHub.

Notaby, Alphabet generated $5.8 billion of revenues from Google Cloud in first-quarter 2022, up 43.8% year over year.

According to Canalys report, in the first quarter of 2022, the top three cloud infrastructure providers were AWS (33% market share), Microsoft Azure (21%) and Google Cloud (8%).

Nevertheless, Oracle’s 12.5% stake in the TikTok Global business, is likely to be a game-changer. It positions the company well to rev up competition in the cloud domain and ensnare more market share in the days ahead.


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