TikTok in US Gov’s Crosshairs Adds Risk for Digital Realty

The Trump administration is gearing up to order Chinese company ByteDance to sell US operations of the video-sharing app TikTok, Bloomberg reported Friday. The move would bring some business uncertainty for ByteDance’s data center providers in the US, where the company only recently became a major data center customer.

It would also highlight the double-edged sword for publicly traded data center providers in doing business today with rapidly growing foreign companies tied up in geopolitical tensions. Investors in these data center providers prize the safe bets they make by signing large, long-term leases with stable, credit-worthy customers.

Bill Stein, CEO of Digital Realty Trust, with whom ByteDance reportedly signed a 9MW data center lease in Ashburn, Virginia, last year, said his client roster was diverse enough to make the level of risk in doing business with such companies acceptable.

“We want to welcome all the right customers into our fold,” Stein said, responding to an analyst’s question on Digital Realty’s second-quarter earnings call Thursday. “And I think we do the right things in evaluating the right risk, but I think the diversity is what insulates us or protects us [from] any type of exogenous shots.”

The analyst, Colby Synesael with Cowen, didn’t name the customer, referring to “specific Chinese social media applications and websites” the US government has been threatening to shut down.

“I believe that they've been a big purchaser of data center services over the last few quarters,” he said. “I'm just curious how you guys get comfortable underwriting the risk of taking on a customer like that in light of all the geopolitical uncertainty that could be impacting them?”

Publicly, US officials have expressed national security concerns about a Chinese company having access to apps on American citizen’s phones. Secretary of State Mike Pompeo recently said the Trump administration was considering an outright ban of TikTok in the US.

TikTok users have organized flash mobs that have interfered with activities of Trump’s reelection campaign. TikTok users have claimed to have inflated attendance numbers of the president’s rally in Tulsa, Oklahoma, in June by registering in large numbers to attend without any intention to come.

In July, thousands of TikTok users flooded the Trump campaign app’s page in the Apple App Store with negative reviews. It was explained as a retaliation by the app’s young users for the Trump administration’s threat to ban it in the US.

In a tweet Friday, after the Bloomberg story came out, Fox Business reporter Charles Gasparino said he was able to confirm through “investment banking sources” that the order to divest TikTok US was imminent. He also said Microsoft was rumored to have been one of the interested buyers:

Bloomberg later confirmed that Microsoft was in talks about acquiring TikTok US operations.

TikTok is the new name ByteDance gave the lip-syncing app Musical.ly after it acquired it in 2017 for $1 billion. The app, available globally, has an estimated 800 million monthly active users, according to Business of Apps. It is the world’s eighth most used social platform, according to research by Hootsuite.