In one of the biggest upsets of 2020, TikTok rejected Microsoft’s acquisition offer and instead accepted Oracle’sORCL

proposal to become TikTok’s “trusted technology provider”. Oracle, the company that has zero experience in social media, will become a minority investor in TikTok — deal pending approval by the US and Chinese government.

On July 31, President Trump had threatened to ban TikTok in the US unless TikTok sold its US division to a non-Chinese buyer. The Oracle deal isn’t exactly what Trump wanted but it may be as good as he can get.

• Data security… This partly addresses Trump’s data security concern by having Oracle store user data inside the US. However, the deal falls short in fully solving security concerns — China could still potentially filter what TikTok shows to its users.
• Job creation… TikTok will keep their headquarters inside the US and 20,000 jobs could be created.

(Catch up: What is TikTok and why is President Trump forcing a sale of TikTok to a US based company?)

Oracle, the unremarkable wallflower

If you’re looking for a fast-growing company, you’re in the wrong place. What you’ll find here instead is a low risk, low growth business generating lots of cash. Oracle develops and sells software to help businesses run different parts of their business (e.g. supply chain management, financial planning). Over the past 5 years, Oracle’s stock generated a lackluster 10.8% annual return, compared to some of its competitors, Microsoft with 36.7% and Salesforce with 28.9%.

If you can’t convince your customers… buy them

An investment in TikTok will benefit Oracle but it’ll still be far from a game-changer. The deal will not give Oracle access to TikTok’s algorithm, the secret sauce to what makes TikTok so valuable and the engine that recommends what videos to show next. Instead, here’s how Oracle could benefit:

• Cloud business growth… As part of the deal, TikTok will become a key customer in Oracle’s cloud services. Oracle’s cloud business is far behind its competitors and after adding Zoom as a customer in April, adding TikTok will only give it additional credibility.
• Investment growth… TikTok is a fast growing business with the potential to generate billions in ad revenue. Oracle could profit from an increase in the value of its investment.