TikTok IPO: Will ByteDance Go Public in 2020?
TikTok is a popular app with Gen-Z and millennials. It has a strong user base in the West and is expanding around the world. With this growth, investors are asking about a TikTok IPO. However, its parent company, ByteDance, is more likely to go public.
However, many investors are skeptical of an IPO. The company might not be worth its lofty valuation. ByteDance is an investment unicorn and one of the highest-valued startups in the world. Private investors have valued it at as much as $78 billion. That’s steep, and there are other concerns ByteDance needs to address before an IPO.
ByteDance/TikTok IPO: What is it?
TikTok is a social media app that allows users to create and share video content. Users create up to 15-second videos and share them across their network. The videos can go viral on other social media platforms, such as Instagram and Facebook.
TikTok also lets users take meme culture to another level, which younger generations love. Memes influence online culture. They’re copied media (usually with small edits) that spread rapidly online. They’re for people to enjoy, laugh at and relate to.
ByteDance is the parent company of TikTok. It is an internet technology company based in Beijing. ByteDance builds content platforms to educate, entertain and inform people. Another one of its more popular products is Toutiao, a news and information platform.
Reports claim ByteDance has a valuation of $78 billion. That makes it one of the most valuable startups in the world. So what investor wouldn’t want to get their hands on a TikTok IPO?
Before getting too excited about this investment opportunity, there are some red flags.
ByteDance IPO: Is It Worth $78 Billion?
ByteDance reached this valuation after a round of private investing in 2018. The effort was led by SoftBank and raised around $3 billion. Now, if a ByteDance IPO does happen, early investors might cash out.
However, it’s unlikely ByteDance is worth that much. According to Nikkei Asian Review, an analyst at China’s Guodu Securities said, “I really doubt it would achieve that valuation in a public offering.”
Investors also point out that TikTok isn’t making much money. Its income relies on advertising.
“They’re spending a huge amount of money promoting it (TikTok),” Facebook CEO Mark Zuckerberg said, according to leaked audio by American media. “What we’ve found is that their retention is actually not that strong after they stop advertising.”
ByteDance has been loss-making until a profit in June 2019. But whether the company will continue to see profit or achieve its desired revenue remains a mystery. And after the struggle of Uber and Lyft IPOs in 2019, investors are wary of popular startups with no proof of consistent income.
In addition to questions about the company’s valuation, there’s an even bigger issue for a ByteDance IPO…
TikTok Faces Political Pressure
The TikTok app has been facing a lot of political pressure from both India and the U.S. Both countries have a large number of TikTok users.
India. Politicians in India have accused TikTok of spreading pornographic content and inciting racial hatred. An Indian court feared the app would expose children to sexual predators and enable cyberbullying.
TikTok was banned in April 2019 for a total of two weeks. The court revised its decision after an appeal from ByteDance. The company claimed it had cracked down on inappropriate content. During those two weeks, TikTok missed out on the opportunity to add 15 million users. But it didn’t only miss gaining more users. ByteDance reported it lost $500,000 in revenue every day the app was blocked.
United States. The trade war between China and the U.S. is also a big factor in the TikTok IPO decision. ByteDance is a Chinese company. As tensions rise, everyone gets more suspicious of each other. TikTok is no exception…
In October 2019, U.S. Senator Marco Rubio wrote a letter to Treasury Secretary Steven Mnuchin. Rubio wanted a national security review of ByteDance buying American social app Musical.ly. The app was competition and heavily influenced TikTok. But Rubio worried there were ulterior motives.
Rubio claimed that apps like TikTok are being used by the Chinese government to “globally suppress freedom of speech, expression and other freedoms that we as Americans so deeply cherish.”
“I remain deeply concerned that any platform or application that has Chinese ownership or direct links to China, such as TikTok, can be used as a tool by the Chinese Communist party to extend its authoritarian censorship of information outside China’s borders and amass data on millions of unsuspecting users,” Rubio wrote in his letter.
With the civil unrest and protests happening in Hong Kong, people believe the app is censoring related content. However, Rubio points out another large issue in his letter. And he isn’t the only one with concerns about the popular app.
Senators Charles Schumer and Tom Cotton also asked for an investigation of TikTok for national security. In November 2019, the Committee on Foreign Investment in the United States was reportedly looking into ByteDance’s purchase of Muscial.ly.
During a hearing, Senator Josh Hawley said, “A company compromised by the Chinese Communist Party knows where your children are, knows what they look like… All it takes is one knock on the door of their parent company (ByteDance), based in China, from a Communist Party official, for that data to be transferred to the Chinse government’s hands.”
It’s a terrifying thought. It’s a huge obstacle that puts negative pressure on a ByteDance IPO.
However, ByteDance is taking every measure to reassure Congress and investors this isn’t the case. In October, the company posted, “We store all TikTok U.S. user data in the United States, with backup redundancy in Singapore. Our data centers are located entirely outside of China, and none of our data is subject to Chinese law.”
ByteDance has hired a legal team in the U.S. to help address concerns of Congress.
Will ByteDance IPO?
A ByteDance IPO is likely to hit the market. It was reported to be expected as early as the first quarter of this year. But the company came out and said there is no truth to the rumor. It comes as no surprise given the circumstances.
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Talk of a TikTok IPO isn’t wrong. The company does hope to eventually go public. But it also knows that without the interest and support of U.S. investors, a ByteDance IPO has a good chance of failing.
About Amber Deter
Amber Deter has researched and written about initial public offerings (IPOs) over the last few years. After starting her college career studying accounting and business, Amber decided to focus on her love of writing. Now she’s able to bring that experience to Investment U readers by providing in-depth research on IPO and investing opportunities.