'The odds are definitely growing' for a possible TikTok ban in the U.S.: Analyst

CFRA Research Senior Equity Analyst Angelo Zino discusses the impact of AI on the tech space, the latest news surrounding Apple and Disney, and the potential for a TikTok ban.

Video transcript

SEANA SMITH: Let's talk about big tech, and I want to bring this up. There was a note out from Laura Martin over at Needham earlier today talking about Apple potentially buying Disney, what that would do for Apple's business. She's saying that that's going to unlock an upside of about valuation upside of 15% to 25%. Any strategic value for Apple in potentially buying Disney?

ANGELO ZINO: Listen, I think it would be absolutely great. I mean, if you think about Apple here and what they could potentially buy out there, at Disney would make all the sense in the world from the perspective that that's a high-quality type of company in absolute great brand. And to have the opportunity to buy, that would be great. In our view though, that's not happening.

If you're thinking about Apple here, clearly, in the past, they've never done anything north of 3 billion in terms of beats in terms of M&A. And they're going to keep, continue to do what they've done in the past. And that is buy back their stock and buy back it aggressively. So in our view, that's probably boring for investors to hear. But in our view, probably the right call.

- So would you rule out M&A altogether for Apple in the year ahead?

ANGELO ZINO: I think it's tough because-- and then you have to think about Apple here. I mean, they typically do make about an acquisition per month. Or at least that's what they've said in the past. So they do M&A. But it's typically on a smaller scale side of things, very small, incremental to their business. And when you start thinking about some of the regulatory issues out there and what, you know, from the political standpoint, what they want to see from big tech out there, I think the last thing they really want to see is significant M&A or large M&A from these bigger tech companies. So in our view, they probably steer clear of it.

SEANA SMITH: Angelo, Apple also announced a worldwide developers conference in June. Lots of talk about that, mixed reality headset. Does that move the needle at all? How big of a hit if we do get it could that product potentially be do you think?

ANGELO ZINO: Yeah, I mean, as far as we're concerned in '23 and probably '24, it's not going to move the needle. I think it's a positive and incremental positive, especially for their wearables segment out there. It's a small-- overall, their wearables division about 10% of their revenue. So this has the potential if you're looking at about 1,000,000 to 2 million in potential sales here over the next year. It has the potential to move at least the wearables segment incrementally, but nothing kind of that's necessarily going to move the top line significantly.

But again, it does increase their addressable market. We think it's important longer term for them to continue to find these new opportunities and expand that addressable market. So for from my perspective, this is going to be a flagship device where you're going to see kind of lower price points over time where they can potentially kind of get generate more revenue over time. But over the next 12 to 18 months, it's not a big deal in our view.

- Elsewhere in tech, still a lot of talk about a potential TikTok ban and what that could mean for other companies. You cover Snap and Google who could benefit via YouTube shorts. How likely do you think a TikTok ban is. And who would be the biggest beneficiaries in the space?

ANGELO ZINO: So in our view, we still place probably about a 35% probability that happens 35 to 40%. And, you know, the way we would look at it here is probably six to nine months ago, we would have placed less than of 10% chance out there. So the odds are definitely growing. And I think that's why you've kind of seen some improved enthusiasm in a number of these type of social media type names.

In terms of the names that would be the biggest beneficiaries, we have pegged Snap as the biggest beneficiary out there, clearly, because they're-- they're probably the smallest player within the space and a name that kind of if you look at who they cater to, very comparable to the TikTok community out there. So it's a name that we think can kind of see significant improvement in DA use and also see some potential incremental addition on the add side of things. So that's the name that we think at least from an immediate perspective would be the biggest beneficiary if you think that's the ultimate outcome.

- Great stuff. Angelo Zino, appreciate that. CFRA.