Chinese company ByteDance, also known for owning TikTok, has announced plans to go public, with the goal of running its initial public offering (IPO) in late 2021 or early 2022.
Maxim Manturov, head of investment research at Freedom Finance Europe, told What Investment the key information investors should know before launch.
He said the company has had to suspend IPO due to Chinese regulatory concerns about data protection and other risks.
“The Chinese government has tightened IPO regulations outside of China, including technology companies that store information for a million users,” he said.
“These companies are now required to be approved before launching their IPOs, as user data may be affected or used by other government agencies.”
ByteDance, of course, is perhaps the most famous for the video sharing site, TikTok, but it only accounts for 3% of the company’s profits.
While the other 97% comes from activities in China, Manturov said TikTok is unique considering that “it was successful in what other Chinese companies failed: it conquered the world.”
The blockchains as a result of Covid-19 provided the perfect conditions for social media and digital platforms. By early 2021, TikTok had more than 689 million active users worldwide per month.
“While relatively new, the app is already among the most downloaded, even ahead of Facebook, which was previously the most downloadable app in the world,” he added.
Valuation and business model
In 2020, investors valued TikTok at about $ 50 billion, significantly higher than other media giants like Snapchat.
ByteDance, according to the head of investment research, is worth much more.
“The latest information is that the company has about 1.9 billion monthly active users and is valued at $ 250 billion in the private capital markets and $ 400 billion overall, making it a the most profitable start-up in the world, ”Manturov said.
The business model focuses on mobile apps and content platforms, including Toutiao, which offers a custom news channel.
However, TikTok’s business model combines a traditional social media platform strategy with new creative strategies that allow users to post their own videos.
“What makes TikTok stand out is that it is based on AI, meaning that when users create or view content, the app collects that data with a machine learning algorithm,” he said.
“This allows TikTok to improve its users’ content channels, which in turn increases engagement and generates more data.”
Do you have to invest?
In 2020, TikTok’s profits were valued at $ 1 billion, with only a small fraction of ByteDance’s total revenue of $ 30 billion.
Thus, the consensus on the value of TikTok, $ 50 billion, is 50 times more than its net profit.
While concern about the influence of Chinese technology is a potential breach and other countries could follow the example of the US and India in tightening regulation.
Manturov said investors should also take into account financial performance, as poor fundamental factors can lower the share price.
“You should aim to invest only a fraction of your portfolio in high-risk companies. Depending on your risk appetite, this could be 3% to 5% of your overall investment capital, ”he concluded.