How Solid Is TikTok?

There's another news about ByteDance, one of the many facts about TikTok's parent company that regularly makes the news. On March 1, this year, ByteDance announced a $92 million settlement in 12 US lawsuits filed against the company. The decision to settle was made after a year of legal proceedings.

The charges against ByteDance now sound familiar to the average ear. The TikTok app breaks into its users' hardware and collects private data and even biometric data on a large scale. It uses ByteDance to build profiles of its users for marketing purposes, for example. It also sold this data to third parties such as Facebook and Google without asking permission. The company is and remains vague about where all this data is actually stored. Is that in the US, in China, or somewhere in Europe? Who really knows can say it.

As so often, ByteDance has promised to improve, but this has been done before in the near past without any real concrete implementation. This probably means that more mass claims will follow in the near future, which may then also have to be bought off.

Bytedance's financial strength

All things considered, not much is actually known about ByteDance's financial situation. It is still a private company and is therefore not obliged to account for the outside world. Data coming out is scarce and scant. What is clear is that 2020 was a particularly good year for ByteDance. That was actually in line with expectations. Apps such as TikTok and its Chinese sister Douyin offer the general public distraction and entertainment in times of lockdowns.

Reports from the Wall Street Journal, among others, show that the turnover of ByteDance in 2020 had increased by no less than 111% to an amount of $34.3 billion. With this outcome, the company exceeded its own target of $30 billion. Gross profit increased 93% to a total of $19 billion. The company was also able to report that in the month of December of 2020, its apps such as TikTok, Douyin, and Jinri Toutiao had collectively attracted 1.9 billion users.

This is where the good news ends. On an operational level, ByteDance posted a loss of $2.1 billion against an operating profit of $684 million in 2019. The negative result is said to be due to higher financial compensations – in some form – for the roughly 110,000 employees.

On the bottom line, a loss of $45 billion remained. By comparison, ByteDance's closest competitor in China, Kuaishou, posted a loss of $15.4 billion for 2020 on revenue of $8.5 billion.

ByteDance's market cap

According to the Financial Times, the loss was the result of 'non-cash items' such as the revaluation of the fair value of the convertible redeemable preferred shares. These kinds of accounting adjustments are common among startups dealing with widely varying valuations. The latter is certainly the case with ByteDance.

In March 2020, the company successfully withdrew funds, raising its market capitalization to an estimated value of $140 billion. In December of the same year, the value touched $180 billion after successfully withdrawing $5 billion from the market, according to the Chinese news portal 36Kr. In June of this year, this news portal estimated the value of ByteDance at $425 billion. 36Kr arrives at this amount based on three newly listed holdings in ByteDance.

Competitor Kuaishou plays a not insignificant role. It went public on the Hong Kong Stock Exchange in February and saw its market capitalization double in a matter of months. Investor enthusiasm for Kuaishou is fueling investor interest in ByteDance, especially now that persistent rumors have been circulating that the company is preparing an IPO. Given the efforts of the Chinese government to get a grip on the tech sector, a quick IPO (IPO) does not seem likely now.

ByteDance is looking for new sources of income

36Kr has attempted to analyze ByteDance's revenue sources and arrives at the following breakdown:

- Total turnover was Yuan 240 billion.

- Advertisements generated revenue of Yuan 175 billion.

- Live streaming services contributed an amount of Yuan 45 – 50 billion.

- E-commerce accounted for an amount of Yuan 6 billion.

- Gaming and Education contributed Yuan 5 billion and Yuan 3 billion respectively.

TikTok and Douyin together reportedly accounted for 60% of advertising revenue and account for the lion's share of users of the various apps.

According to insiders, the company is therefore looking for alternative sources of income. The first initiatives have already got off the ground. It is notable that Bytedance is looking for new refuge in offering products and services to technology companies in China and on the international markets.

According to the same insiders, the Chinese are speeding up the introduction of new products and services in order to make the possible IPO even more attractive. This will certainly be the case if the new initiatives prove to be successful and provide new sources of income.

Last June, Bytedance launched a new division, BytePlus. This division offers its customers packages of its own Artificial-Intelligence technology. BytePlus seems intended for the international market because in February of this year the company offers similar services in China under the name Volcano Engine or Volcengine. Both initiatives have already been able to acquire some big-name customers, such as the American Goat and the Chinese JD.com. With its offering, ByteDance is in direct competition with big names such as Amazon Web Services, Microsoft, and Google. The pipeline includes products such as mobile games and video editing apps.

With all these new products on the way or already in the market, Bytedance seems to be securing its future. More products and services should provide diversified sources of income. The company will remain financially strong enough to buy off any mass claim. With an oblique eye on all the mass claims, it is at least an interesting thought that, thanks to a successful diversification, Bytedance can put TikTok and Douyin at a distance. Take into account that the company now seems to be seeking refuge in the corporate sector and no longer in the consumer sector.

Whether there will be an IPO in the short term appears to have become extremely uncertain due to the government's actions against the tech sector. It seems better to remain a private company for a while.