This is part 2 of our coverage on recent developments around the Chinese short-video sharing app. Part 1 offers analysts' takes on a potential Microsoft-TikTok combination.
A sale of short-video sharing app TikTok Inc. could drive down Beijing Byte Dance Telecommunications Co. Ltd.'s valuation and force the company to shift its focus on operations in China, analysts said.
Microsoft Corporation is in discussions with ByteDance to acquire TikTok's U.S., Canada, Australia, and New Zealand businesses and will have a result by Sept. 15, according to an Aug. 2 blog by the software company.
The proposed deal has already faced significant pushback from the Trump administration and several top lawmakers, who claim the app shares data collected from American users with the Chinese government, an assertion TikTok has denied.
The valuation of ByteDance could be reduced by nearly US$100 billion with a TikTok divestiture, according to Shawn Yang, deputy head of research at Blue Lotus, a boutique investment bank of China. He noted that TikTok is the Chinese internet company's major, if not the only, overseas business.
ByteDance investors reportedly valued TikTok at US$50 billion, 50x its projected 2020 revenue US$1 billion. Yang values ByteDance's domestic business at around US$100 billion based on the company's recent revenue growth. Valuations of TikTok and ByteDance's domestic business could double in the next few years if growth momentum sustains, he said.
TikTok recorded 315 million downloads in the first three months of 2020, topping all apps in the world, according to mobile research company Sensor Tower. Total downloads surpassed 2 billion globally. India was the biggest growth driver with 611 million downloads, followed by China, which has its own version of the app, Douyin, and the U.S. (165 million downloads).
Potentially losing TikTok means ByteDance needs to strengthen its domestic business. "How to tell a growth story to investors without TikTok is the essential question ByteDance should think currently," Blue Lotus' Yang said.
Driven by ad growth from its apps including Douyin and news app Jinri Toutiao, ByteDance, a private company, reportedly posted total revenue of 40 billion Chinese yuan in the first three months of 2020, up 130% year over year.
Douyin could be a major revenue generator for ByteDance, Jayanth Kolla, founder of technology research firm Convergence Catalyst, said. He noted that Douyin, China's own version of TikTok, features livestreaming and online shopping, which would allow the company to establish its own e-commerce ecosystem, Kolla. Owning TikTok, meanwhile, would accelerate the company's e-commerce growth, he said.
ByteDance formed an e-commerce unit in June to supervise online shopping operations on Douyin, Jinri Toutiao and video platform Xigua Video.
Beyond e-commerce, ByteDance could focus on its mobile gaming and online education businesses, Yang said. In April, ByteDance launched an artificial intelligence-powered language tutoring app for kids. The company has also stepped up its mobile gaming operation, hoping to compete with China's mobile games developer Tencent Holdings Ltd.
India banned TikTok in June, citing security risks. "I am surprised that Microsoft did not include Indian operation of TikTok into its acquisition plan," Kolla said. Potential buyers in India, such as Reliance Industries Ltd.'s Jio Platforms Ltd., "can make a move for the Indian operation of the app," he said.