The TikTok CEO's day in Congress was a 'disaster' that means the app will still likely get banned or sold, Wall Street says

• TikTok CEO Shou Zi Chew testified in front of US Congress, amid calls for a forced sale or ban.
• Lawmakers grilled the CEO about TikTok's ties to China and its content moderation policies.

TikTok's CEO Shou Zi Chew testified in front of Congress Thursday, as calls for a forced sale of its US business or a ban are on the rise.

The hearing was meant to give TikTok the chance to assuage lawmakers' concerns about the social media app's data privacy policies and its ties to China via its parent company Bytedance.

But after hours of grilling, the testimony likely had the opposite effect.

"We would characterize today's testimony by TikTok CEO Shou Zi Chew in the Beltway as a 'disaster' moment that will likely catalyze more calls by lawmakers and the White House to look to ban TikTok within the US if the company does not look to spin-off and force a sale from Chinese parent ByteDance," said Dan Ives, an analyst with Wedbush.

Lawmakers seemed frustrated by TikTok CEO's remarks

The Biden Administration is pushing for a sale of TikTok's American business, and threatening a ban if that doesn't happen. Thursday's hearing likely gave lawmakers even more fuel for the argument in favor of a sale or a ban.

"I don't think he made any new friends today and changed any minds," said Matthew Schettenhelm, Bloomberg Intelligence's senior litigation and government analyst. "This was always going to be a very unpleasant day for TikTok."

The majority of questions focused on national security concerns and TikTok's ties to China. Lawmakers also grilled Chew on TikTok's strategy for dealing with harmful content on the platform and plans to increase safety for children using the app.

However, lawmakers seemed frustrated with Chew's answers to many of the questions. In several instances, lawmakers from both sides of the aisle pushed the CEO to answer complex questions with a simple "yes" or "no."

"I am not being reassured by anything you've said so far. And I think quite frankly, your testimony has raised more questions for me than answers," said Rep. Lisa Blunt Rochester, a Democrat from Delaware.

To be fair, the task of changing lawmakers' opinions was a nearly impossible one, analysts said. Mark Shmulik, an analyst with Bernstein, noted that previous testimony from leaders like Meta's Mark Zuckerberg or Google's Sundar Pichai did little to change those companies' perception on Capitol Hill.

"We've gone through this in the past and they tend to have very limited impact in terms of changing behavior and much more just about reinforcing existing held beliefs," he said.

A sale or ban of TikTok is still likely

Without a radical shift in the conversation, the status quo is upheld. Which means that the same question is now being asked: Is TikTok more likely to be forced to sell, or will it be banned outright?

TikTok now has 150 million monthly active users in the US, almost half the population, meaning any effort to ban it is likely to face stiff resistance.

However, the types of questions lawmakers asked, gave a clear picture that many of them, Democrats and Republicans alike, are in favor of a ban.

At the same time, a sale is difficult and the list of available buyers is small, Insider previously reported. However, China would likely stand in the way of any kind of forced sale, especially one that includes selling TikTok's content-recommendation algorithm to a US entity. That would drop the company's value significantly and likely wouldn't address US lawmaker's underlying concerns.

Regulation is a possible way out for TikTok

Congress does have a few bills aimed at enacting restrictions for TikTok and other apps, like Democratic Senator Mark Warner's RESTRICT Act. It would allow the federal government to regulate and ban foreign-produced technology, including TikTok. However, the decision will ultimately be President Biden's, Schettenhelm said.

"It's very possible that Congress advances these bills and, and passes them, but those bills won't ban TikTok," he said. "It's ultimately going to be President Biden's call and there's the potential that he's gonna have to make a decision like that going into the 2024 presidential election."

Ives estimates that TikTok has three to six months to figure out a sale to a US buyer or risk getting banned by the end of 2023. Other analysts think the timeline is longer, and that TikTok stays in this limbo for another two years, if not longer.

Either way, the hearing did nothing to change the difficult position TikTok is in, except maybe give it a to-do list of actions to improve safety on the platform.

"In our opinion, the odds were stacked against Chew heading into today and he tried to answer the questions, Ives said. "but ultimately walks away with many questions unanswered and TikTok now in the hands of CFIUS with the next poker move."