The Scottish Mortgage Investment Trust (LSE: SMT) share price has risen 18% in 2024. That’s roughly double the FTSE 100‘s equivalent return, even with dividends factored in.
However, the trust aims to own the “world’s greatest growth companies“, and they’re rarely found in the Footsie. So the outperformance is due to events stateside, where tech stocks are back in vogue.
But could the looming TikTok ban in the US be about to throw a cat among the pigeons?
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What’s the latest?
Earlier this year, President Joe Biden signed a law that would ban TikTok in the US unless the social media app’s owner (China’s ByteDance) sold it to an American company.
This is due to concerns about TikTok’s collection of vast amounts of data from its 170m US users, which Washington fears Beijing could access.
ByteDance denies this and is mounting a last-minute appeal. As things stand though, TikTok must be be banned or sold by 19 January!
Already priced in
Scottish Mortgage holds a sizeable position in private company ByteDance. According to the latest portfolio data available (from 31 October), that holding was worth £426m (around 3.1% of assets).
The risk is that ByteDance’s private valuation in the private market will take a hit the next time it’s calculated. However, forward-looking investors have probably already factored this risk in.
After all, ByteDance last valued itself at $300m in November. That’s far lower than Facebook owner Meta Platforms‘ $1.5bn market cap, despite TikTok having an estimated 2bn (and growing) users.
ByteDance is on track to hit $145bn-$150bn in revenue for 2024, up from $110bn in 2023. That would suggest a low forward price-to-sales (P/S) multiple of about two.
Meta’s forward-looking P/S ratio is more like nine after its 400% share price surge since January 2023. On paper then, ByteDance already looks cheap.
Of course, the ban would still be a blow to the firm, as America’s a lucrative market for advertising revenue. However, TikTok’s daily active users (DAUs) in the US apparently make up just 5% or so of ByteDance’s DAUs worldwide. So it seems manageable.
US economy
Looking ahead though, the ban could hit the stock market more broadly and therefore Scottish Mortgage’s share price.
That’s because the app contributed $24.2bn to the US economy last year, according to TikTok. It also supported 224,000 jobs, while 7m American businesses use the platform to reach and target customers.
I can imagine a fair few TikTokers would be peeved about the ban! Donald Trump might be too, as he’s very popular on the app. He’s currently urging the US Supreme Court to delay a ban.
This issue might also rattle investors due to fears that Western brands — including Apple, Starbucks, Nike, Tesla — could be targeted in China in retaliation.
Foolish takeaway
For me, Scottish Mortgage’s diversified portfolio is unlikely to suffer too much from a TikTok ban in the US. The cheap ByteDance valuation suggests risks are already largely priced in.
Moreover, the trust’s holding in Meta Platforms is now larger than ByteDance. Meta’s main apps (Facebook and Instagram) are expected to directly benefit from any ban as they reap diverted advertising spend.
If there’s a bit of volatility in the share price in January, I think Scottish Mortgage would be worth considering for long-term investors.
