ByteDance (TikTok) trade idea

According to a recent research done by mobile apps analytics company SensorTower, ByteDance’s TikTok has topped the ranking in generating the most revenue amongst the non-games mobile apps in the 2nd quarter of 2020. IG’s ‘grey market’ on ByteDance (TikTok) IPO market cap has gained momentum under the announcement and hit a record breaking USD 200 billion at the end of June.

Needless to say, under the prevalence of consumers more drawn to their mobile devices during the global Covid-19 pandemic, TikTok has delivered an outstanding quarterly performance from the skyrocketing downloads and time spent per user. In comparison to the 2nd quarter 2019 results, TikTok’s in-apps monthly revenue has risen by more than 50% YoY in several months of the 2nd quarter in 2020, and has almost tripled or quintupled, surpassing a total number of combined downloads of more than 2 billion times globally from both Google Play and Apple store. Netflix, being a close competitor of ByteDance, has a market capitalization of over USD 200 billion in June under a smaller revenue performance compared with TikTok. Hence, investors’ 200 billion bet on ByteDance IPO market cap was reasonable by that moment.

In early July, TikTok’s growth took a turn as the company started facing several political heat – from their first exit from the Hong Kong market due to the new national security bill, alongside India’s implementation to ban the app and with the latest news that US is considering to exclude more than 50 Chinese mobile apps including TikTok and WeChat.

India has imposed a ban on dozens of Chinese mobile apps including TikTok due to a border clash between troops from both China and India. Internationalisation has been further impeded with US intention to shut down TikTok in its domestic market under the intensified US-Sino relations. After the implementation of the new national security law in Hong Kong, ByteDance has declared the exit of TikTok which was to be replaced with Douyin (the Chinese version of TikTok). Since early July, a number of political decisions made by US and India has casted a bleak outlook for TikTok’s globalization progress. Under such a backdrop, investors are concern about TikTok's growth, which has dragged IG’s ByteDance( TikTok) IPO market cap lower to the current level of approximately USD 100 billion. IG’s ByteDance (TikTok) IPO market value has simultaneously recorded a conspicuous decline of more than 20% as of 7th of July.

From our analysis, the ban from the US and Indian government will not have a material impact on TikTok’s revenue growth in the short term, but the damage to TikTok’s new user traffic in the international market may be huge

From the below table and charts, we saw a surge in TikTok’s total downloads within the 1st quarter of 2020, with Tinder and YouTube taking the first and second place respectively in terms of in-apps revenue (SensorTower has not listed the detailed in-apps revenue of TikTok in 1st quarter). In January 2020, TikTok revenue made its first appearance into the top 10 of the list. But with the gargantuan downloads happening within the 1st quarter, TikTok started to see its revenue surpassing the non-games mobile apps list, overtaking major competitors including YouTube and Netflix. That said, new user traffic and downloads will be paramount to bring about the increase of revenue.

Amongst the different markets, India, the US and Brazil have contributed the most traffic in TikTok’s new user downloads. The ban from the US and India will definitely be detrimental to the future growth of new user traffic. And with the impending TikTok’s removal from the US market, which is the primary market and key influence in the western culture, this will pose a threat on ByteDance and TikTok’s globalization progress.

Despite these factors, the ban may not severely impact TikTok and ByteDance’s revenue growth in the short run as the mainland Chinese market still contributed more than 80% of ByteDance and TikTok’s revenue . Even with US banning TikTok from going live in its domestic mobile market, the revenue loss resulting from this at the moment will be limited. But attracting new traffic and expanding user base are core competitiveness for internet companies like ByteDance. Only time will tell how big the impact will be on TikTok’s future operation from the US and India’s rejection. IG’s ByteDance (TikTok) IPO market cap may lack upside momentum in the short run.

ByteDance and TikTok's future outlook: if TikTok aims at a global appearance and endeavour to diversify its income source (not just from China), the US’ stance and TikTok's future traffic growth are still the key

Europe and America are still the main market drivers for online entertainment and consumption. TikTok and ByteDance have already achieved success in the Greater China market. TikTok is projecting a stronger focus on the broader European and American markets with the help of ByteDance endeavours to make TikTok a new international flagship app within the global technology sector. However, the final decision of the US government will ultimately influence TikTok's internationalization process. Recently, TikTok has reported to set up a new US company to expand its global appearance and try to persuade the US government to continue its presence in the American market. In addition to the saturated Chinese market, TikTok and ByteDance definitely need to further enter more developing and developed markets to achieve ever-increasing traffic growth and ultimately achieve a leap in its revenue from the international market.