Despite ongoing regulatory scrutiny in the U.S., TikTok Inc.-owner Beijing Byte Dance Telecommunications Co. Ltd. is well placed for an initial public offering following a boost in popularity and organizational changes, experts told S&P Global Market Intelligence.
The Chinese internet technology company was planning to list in Hong Kong this year, according to media reports. ByteDance declined to comment when contacted by this news service.
While the TikTok parent is working to resolve regulatory concerns in the U.S., its video-sharing social network has seen huge growth in the country and elsewhere, meaning a later, 2021 IPO is possible, analysts said. The Chinese company, which was valued at about US$75 billion during a funding round in August 2018, is now reportedly valued between US$105 billion and US$110 billion, based on recent secondary market trades.
In the first three months of 2020, TikTok generated the most downloads of all apps globally, according to analytics company Sensor Tower. India, China and the U.S. were the top three markets for TikTok downloads. The period saw the start of the coronavirus outbreak and subsequent lockdowns, which led to an increase in internet usage around the world.
"Given anti-China rhetoric in the U.S., ByteDance certainly faces some wildcard risks [for an IPO], however users do not seem so bothered by potential privacy issues or politics given how rapidly they are signing on," Vincent Fernando, managing director of independent research firm Zero One, said.
User spending on the app totaled US$456.7 million in the quarter ended March 31, 2020, up from US$18.9 million year over year, according to Sensor Tower. U.S. users accounted for 19% of the first quarter 2020 total and were only outspent by China-based customers.
The coronavirus may have boosted TikTok usage, but the economic impact of the pandemic means investors are even more wary of pre-profit listings, analysts said. ByteDance does not publish its financials, but media reports said it posted a profit in June 2019 after earning over US$7 billion in the first half of the year.
The company has expanded its revenue streams and monetization strategies, such as livestreaming, gaming and e-commerce, so it is a matter of time before ByteDance turns fully profitable, Ke Yan, head of research at DZT Research, said.
The company received its first gaming approval in 2020, according to a March 10 Technode report. ByteDance's Jinri Toutiao news app has been profitable for some time, Yan added.
ByteDance has a rich set of apps and a larger global market than Alibaba Group Holding Ltd., Jayanth Kolla, founder and partner of technology research firm Convergence Catalyst, said. If Alibaba can successfully second-list in Hong Kong, then "why not ByteDance," he added.
The company has shown it can shore up its business amid persistent U.S. regulatory scrutiny, the experts said.
The Committee on Foreign Investment in the United States, or CFIUS, reportedly started to look into ByteDance's acquisition of TikTok, formerly known as Musical.ly, in November. The committee was concerned that the Chinese government may be using privately held Chinese companies to collect information overseas.
ByteDance is tackling potential U.S. regulatory concerns by separating its TikTok management team in the U.S. from that in China, including hiring local executives, experts said.
The company hired Kevin Mayer, formerly The Walt Disney Co.'s head of streaming, to oversee TikTok's U.S. operations and global market. It hired former Hulu vice president of brand marketing and culture, Nick Tran, as head of marketing for North America in April, according to Adweek. YouTube former global head of creative insights, Vanessa Pappas, joined TikTok as general manager in 2019.
ByteDance has also been exploring storing TikTok user data in the U.S. and keeping it separate and inaccessible to the rest of the company. This could be "one way to assuage U.S. concerns," Fernando said.
If CFIUS decides that despite these measures, ByteDance's ownership of TikTok is a threat to U.S. national security, it could force it to divest the app as it did to Beijing Kunlun Tech Co. Ltd. and its dating app Grindr LLC.
IPO investors therefore want greater clarity on any potential investigation and its financial impact, Yan said.
Private equity backers of ByteDance are also looking for regulatory certainty so they can exit with a higher return on investment. SoftBank Group Corp. is among ByteDance investors.
Such uncertainties are likely to force ByteDance to consider a listing in 2021 instead of 2020, the experts said.