It seems like everyone these days has TikTok: your kids, your sister, even your dad. It is no wonder, then, why so many people are interested in investing in TikTok. There are no hard figures, but experts estimate the value of TikTok to be at $50 billion with some going so far as to say the company may even be worth upwards of $75 billion. But is it possible to invest in this powerhouse that seems to have gripped everyone’s attention?
What Is TikTok?
TikTok was originally founded in 2017 under the name Doujin in China by ByteDance Unlimited. However, the app was such a hit in China that the company released Doujin internationally as TikTok in September of that same year. From there they acquired and merged with lip syncing app Music.ly, allowing them to reach the younger crowd that the app was popular with.
Now, TikTok is the 7 th most downloaded app this decade according to CNET. But if you do not have TikTok yourself yet you might be wondering what exactly TikTok is and why it is so popular with all age groups and demographics. TikTok is, at its core, a platform for short-term videos that range from 30 seconds to 3 minutes long. Users share news, entertain, educate, advertise, or share their day to day lives here and, for many, TikTok is their main source of enjoyment. But there have been apps similar to this in the past that definitely were not this successful, looking at you Vine, so how has TikTok shot to stardom and so attractive to investors?
Where Does TikTok Get Its Success From?
We have established that TikTok is a popular short form video platform, but how has it become so popular where sites like Vine have failed? TikTok’s success could be attributed to a few things that make the site unique. For one, because the videos are so short, they are easy to share with friends and family, something TikTok encourages. Secondly, TikTok provides surprisingly good audio and visual video editing tools on their app, none of which are hidden behind a paywall.
But what really has led to TikTok’s rise to fame and glory is its unique AI algorithm. TikTok’s algorithm is infamous amongst its users and is more effective than even Facebook’s algorithm. TikTok is able to tailor each person’s experience on their platform to their preferences without them having to set any preferences on their own. They are often able to determine what a person wants to see before they know it themselves. The app’s hyper-specific algorithm can even influence a TikTok user’s buying decisions. This makes TikTok a powerhouse in its own right with some countries even attempting to ban the app altogether. However, can you get a piece of this? Is it possible to invest in TikTok?
Investing In TikTok
Unfortunately, TikTok is currently still in private hands, which is sad news for those wanting to invest in TikTok. TikTok is owned by Chinese company ByteDance Limited, though there were rumors in December of 2029 they are developing a possible TikTok IPO. However, there is no hard-set data on this or a possible release time. It is likely that if they were to release a TikTok IPO it would first hit the Shanghai and/or Hong Kong markets.
In 2019 United States President Trump determined TikTok to be a security threat to the United States and attempted to ban its use in the country if ByteDance Unlimited did not sell the app to a U.S. company. Due to this announcement, ByteDance Unlimited began negotiating a deal with Walmart and Origin. Walmart would have had a 7.5% stake in the company and Oracle would have had a 12.5% stake for a combined minority of 20%. This would have allowed investors to indirectly invest in TikTok by investing in these companies, a fact they were likely both aware of besides the profitability of the app. But when President Biden was elected and sworn into office, he put a pause on all Trump administration era national security decisions for his administration to review themselves. Because of this the Walmart and Oracle deal has been indefinitely frozen, which is sad news for investors.
Alternative Companies to Invest In
If you are interested in Chinese tech companies, an alternative to ByteDance Unlimited is Tencent (OTCMKTS: TCEHY). This tech firm owns WeChat, a popular messaging app in China and abroad that will make up 30% of messaging in China in 2020. WeChat Pay is another popular function on the app, processing over a billion payments a day, which is a lot of money traveling through one app. This company also owns a minority stake in Epic Games, creators of Fort it, and a majority in Riot Games, creators of League of Legends. Tencent's total assets comes to $203.48 billion with the company seeing a net income of $24.43 billion in 2020.
In the United States, Twitter (NYSE: TWTR) is a powerful company despite operating at a net loss in 2020. The platform is used by activists, politicians, celebrities, and journalists alike, with many people almost exclusively turning to Twitter for their daily news. Twitter has over 330 million monthly active users and many people use Twitter as much as they use TikTok and recently made $885 million in ad revenue and is estimated to be worth $4.4 billion.
Facebook (NASDAQ: FB) may be the wealthiest social media company currently with its marketplace cap and net worth hitting $527 billion in 2020. Facebook has an algorithm almost as impressive as TikTok’s and is used globally to connect with friends and family. As of 2020, Facebook had reached 2 billion global users, with many exclusively having Facebook for social media. Facebook also owns WhatsApp, a popular messaging service that also hit 2 billion users in 2020.
Investing In Social Media
Investing in social media may seem like a profitable, wise decision at first, but it does have drawbacks every investor should be aware of. Most social media platforms operate at a net loss and do not pay out dividends, which does not make it a favorite of experienced investors. Many of these companies also largely rely on finicky ad revenue to make money, though some are beginning to offer more paid services on their sites that may stabilize and increase revenue in coming years.
Another issue investors face is the constantly changing times. The short form video platform Vine was incredibly popular for a time, but failed after a few years despite its popularity. Also ever evolving are the laws and regulations surrounding the Internet, as it is still a relatively new invention legislation wise. In the coming years there may be more laws and regulations put into place that may affect revenue and investment in these companies, making many investors leery of getting involved currently.
However, if these risks seem worth it to you, investing in social media can be incredibly lucrative. People are increasingly spending time on their phones or computers using these apps, clicking on ads, or using paid services on these apps. In the end, the value in taking a risk is always up to the individual investor.
Author Bio: Adam Garcia
Adam has had a passion for finance and investing since the beginning of high school which led him to found TheStockDork.com as a resource for all investors. Prior to starting TheStockDork.com, Adam founded and operated an Investor Relations Firm. When not frantically optimizing the site, Adam enjoys spending time with his wife and 3 children as well as all things outdoors.