On the evening of August 5, it was reported that Microsoft and ByteDance hope to reach an agreement on Tiktok within 3 weeks, with a valuation of 10 billion to 30 billion US dollars, which is already lower than the previous media reports of 50 billion US dollars. Within the next 21 days, agree on the price, terms, how the acquirer will pay, and specific details such as technology sharing or asset transfer.
After ZTE and Huawei, the influence of geopolitics is like a sword of Damox, hanging over the heads of Chinese technology companies at all times.
 I wonder if Zhang Yiming would have expected that the next thing this sword would stab at was ByteDance. After Tiktok’s US business was required to “must be sold or shut down before September 15”, Zhang Yiming, who has always been low-key, issued two internal open letters in a row.
According to “Business Data School” based on public statistics, except for March, TikTok’s revenue in the app store in the U.S. market from January to July was about 29.78 million US dollars.
According to the performance of Douyin in the domestic market, the revenue in the app store is only a very small part, and it is more in the information flow advertising and e-commerce business, and this part of the revenue is at least 10 times that of the app store. Based on this ratio, TikTok’s business revenue in the U.S. market in the first half of the year was at the level of several hundred million dollars.
If calculated at a price-to-sales ratio of 20 times, the valuation of TikTok’s US business is about $20 billion, which is only equivalent to ByteDance’s revenue for one year.
The sale of Tiktok disrupted the rhythm of ByteDance’s globalization and even had a great impact on the overseas layout of Chinese Internet companies. But from another point of view, Tiktok is forced to be sold, and there is no winner in Silicon Valley.
A detailed explanation of TikTok’s US business valuation
The news of Microsoft’s contact with Tiktok actually began to spread in July, but at one point it was reported that Microsoft had shelved the acquisition plan. Until the morning of August 3, Beijing time, Microsoft issued an official statement, saying that the company’s CEO Nadella had discussed TikTok with Trump. The statement confirmed for the first time that the company was negotiating with ByteDance to acquire TikTok, and promised to The acquisition will close by September 15.
In less than 42 days, what points will this particular takeover battle be negotiated around?
Valuation is the most important thing. According to CNBC, Ballmer, Microsoft’s largest shareholder and former CEO, said in an interview on August 3: “Obviously, (this deal) depends on the price.” Bloomberg pointed out that although TikTok has great potential, Microsoft may would be acquired for less than $50 billion.
According to Comscore and eMarteterde data, TikTok’s downloads in the United States are rising rapidly. During the five-month period from October 2019 to March 2020, the number of unique users increased from 27 million to 52 million, almost doubling increase.
Earlier, according to statistics from Statista, TikTok’s users increased by 1533% from 2017 to 2019, while the other three social media Twitter and Instagram only increased by 13% and 6% respectively, and Facebook users decreased by 26%.
In terms of total U.S. users, Instagram is currently 110 million, SnapChat is 85 million, and TikTok is 52 million. According to the current growth rate of TikTok, it is very likely that the number of users will surpass these two within this year.
In its statement, Microsoft made it clear that “Microsoft will ensure that all private data of TikTok’s US users is transferred to the United States and retained in the United States.” If the deal between Microsoft and TikTok is completed, TikTok may be able to directly provide Microsoft with massive amounts of user data.
According to The Economist (The Economist), when teenagers around the world were forced to stay at home because of the epidemic, TikTok became their indispensable partner. By the end of 2019, TikTok had covered 150 countries and regions and 75 languages ​​in Japan, the United States, Indonesia, India, Germany, France and Russia. Apart from Apple, ByteDance is the only tech company with more than 100 million users each in China and Western markets.
In terms of global users, as of 2019, Instagram has 1 billion monthly active users, with a valuation of 100 billion US dollars; and SnapChat’s second-quarter financial report shows that revenue increased by 17% to 454 million US dollars, and daily active users are also year-on-year. An increase of 17% to 238 million, with a market value of $31.453 billion.
As for the more core revenue data-according to The Economist (The Economist), TikTok has more than 1 billion users worldwide, but revenue has not yet developed.
Sensor Tower data shows that in July 2020, Douyin and the overseas version of TikTok attracted more than US$102 million in the global AppStore and Google Play, 8.6 times that of last July, and once again ranked first in the global mobile application (non-game) revenue list.
Among them, about 89% of the revenue comes from the Chinese version of Douyin; the US market ranks second, contributing 6% of the revenue. ——According to this calculation, TikTok’s app store revenue in the US market is about 6.12 million US dollars.
According to “Business Data School” based on public statistics, except for March, TikTok’s revenue in the app store in the U.S. market from January to July was about 29.78 million US dollars.
According to the performance of Douyin in the domestic market, the revenue in the app store is only a very small part (about 300 million US dollars in the first half of the year, and about 180 million US dollars in the whole year of 2019), more in the information flow advertising and e-commerce business. , this part of the revenue is at least 10 times more than the app store.
According to this ratio, TikTok’s business revenue in the US market in the first half of the year was several hundred million US dollars, which should not exceed 1 billion US dollars. However, Microsoft also hopes to acquire TikTok’s business in Canada, Australia and New Zealand together.
Twitter’s full-year revenue in 2019 was US$3.46 billion, a year-on-year increase of 14%; net profit was US$1.47 billion, compared with US$1.21 billion in the previous year, and the current market value was about US$28.9 billion. According to this calculation, the price-to-sales ratio is 8.35 times. After all, TikTok is on the rise, and has huge future potential. If calculated at a price-to-sales ratio of 20 times, the US business valuation is about $20 billion.
On the evening of August 5, it was reported that Microsoft and ByteDance hope to reach an agreement within 3 weeks, and the two parties will reach a consensus on the price, terms, payment method of the acquirer, and specific details such as technology sharing or asset transfer.
Another focus of acquisition talks is whether TikTok’s core algorithms will be packaged and sold to American companies. Because the biggest value of Tiktok itself is not its huge traffic and user volume, but its core algorithm and technology. Whether in domestic or overseas markets, the algorithm system is the core productivity of TikTok.
So whether it is feasible for Tiktok’s US business to be divested is a question. If TikTok’s US business is divested, the acquirer will obtain TikTok’s user data, but may not be able to obtain ByteDance’s core algorithm, and the user experience and high competitiveness that TikTok relies on to survive cannot be retained. Without the technical empowerment of the byte beating algorithm, Tiktok will only have one name.
Microsoft has been relatively lagging in the field of social products, and through TikTok’s algorithmic data and content operation model, Microsoft is expected to use the short video market to directly compete with Facebook and YouTube, changing the current situation of the social media industry.
Although TikTok’s market value potential can still be higher, in the face of emergency situations, its valuation is likely to be depressed.
In addition, Trump also hopes that Microsoft’s acquisition of TikTok’s US business will provide appropriate economic benefits to the US government (including the US Treasury Department).
Although the acquisition has not yet been confirmed, Microsoft’s stock price has risen by more than 5.6% due to this, hitting a record high of $216.5 per share. Overnight, Microsoft’s market value skyrocketed by $87 billion—far higher than TikTok’s valuation.
Can the dream of globalization still come true?
ByteDance has always been a company with globalization ideals.
In 2014, Zhang Yiming said in an interview with CCTV: “I think we have the opportunity to become an important portal for mobile phone users to obtain information, not only in China, but also abroad.”
ByteDance is indeed the company that understands the most globalization strategy. In the early years, Zhang Yiming went to Tsinghua School of Economics and Management to give a lecture. Dean Qian Yingyi asked him why he didn’t make products tailored to the local area? Zhang Yiming’s answer is: “It doesn’t matter whether the product is localized or not. Our strategy is to globalize the product and localize the content.” – On this point, Zhang Yiming can say that he has seen through the core essence of Internet products.
TikTok’s overseas expansion can almost be said to copy Douyin’s products and operational strategies, and then adjust marketing and content strategies according to local conditions. For example, the product form is still based on user preferences, using decentralized algorithms to push short videos to users in the form of a single column of infinite slides. At the same time, it is different from Douyin. On the discovery page, there is a special column for label trend rankings, just to cater to Overseas users like the habit of adding content tags.
As early as 2015, ByteDance started its global layout, developed the overseas version of Toutiao, Topbuzz, and expanded to Brazil and Japan after landing in the North American market.
For the U.S. market, ByteDance has always attached more importance to it. In 2016, it also tried to buy 4 American social platform Reddit, but it was unsuccessful because of its Chinese identity and quotation relationship.
For ByteDance, Tiktok’s collapse in the US and Indian markets undoubtedly sent a bad signal to other regional markets, and there are further risks in Japan, Australia and other markets.
In addition, the outbreak of the TikTok incident also changed ByteDance’s listing schedule. It has been reported that ByteDance is considering listing its Chinese business in Hong Kong or Shanghai. ByteDance’s revenue has grown rapidly in recent years. It is reported that its revenue in 2019 exceeded 17 billion US dollars and its net profit exceeded 3 billion US dollars. According to the estimated revenue in 2019, the valuation of ByteDance is at least more than 100 billion US dollars. Will the valuation of ByteDance, which has suffered from this storm, be hit?
Judging from the existing revenue, Tiktok’s revenue is about 10% of the revenue in the short video field of ByteDance, which is not a large proportion.
From the perspective of user volume, the total number of users in overseas regions such as the United States and India accounts for half of its short video users. The globalization strategy has suffered a serious setback. In the short term, this will definitely affect the imagination of ByteDance.
But for a healthy company, ByteDance is still doing well in the long run, so there is no need to be overly pessimistic about this incident. For example, Huawei’s revenue in 2019 was 858.8 billion yuan, a year-on-year increase of 19.1%. In the first half of 2020, Huawei achieved sales revenue of 454 billion yuan, a year-on-year increase of 13.1%, and a net profit margin of 9.2%.
In addition, compared with Huawei, ByteDance has the advantage of not being affected by the supply chain.
The sale of Tiktok disrupted the rhythm of ByteDance’s globalization, and even had a great impact on the overseas layout of Chinese Internet companies. But from another point of view, Tiktok is forced to be sold, and there is no winner in Silicon Valley.
The founder of Facebook has changed from a “good son-in-law in China” to a “Zuckerberg”, and even if Microsoft does acquire Tiktok, it still needs to pay a fee first. As a more to B company, can it operate this well in the future? Short video products are still a question mark.
The most emotional thing is the fall of the Silicon Valley spirit. Silicon Valley, once known as the place closest to the dream. Because of the atmosphere that encourages risk-taking, stimulates innovation, tolerates failure, and rarely restrains, it forms a unique Silicon Valley culture.
But the once Silicon Valley spirit has become “can’t beat you, then kill you”. In response to commercial competition, Facebook has launched two short video apps that clone “TikTok”, and at the July 29 antitrust hearing, without conclusive evidence, determined that TikTok stole Facebook’s technology.
