TikTok action: our presentation of the App and its potential IPO

The TikTok IPO could take place in late 2021 or early 2022, although currently nothing has been officially confirmed yet. This platform of short entertainment videos of Chinese origin is a major success in the world and has risen to first place among the most downloaded applications in the world.

Discover the extent of the TikTok phenomenon thanks to its key figures, as well as the origin of the TikTok application.

We will then discuss its business model and we will look at the application's valuation thresholds, potentially attractive thresholds in the context of a possible TikTok IPO. For this, we applied a comparative approach with Facebook.

Finally, we will try to determine whether or not it may be interesting to participate in the potential IPO of TikTok.

Infographic: TikTok key figures

The following statistics testify to the major and exponential success of TikTok.

No. 1 application in the world in number of downloads

800 million: the number of monthly active TikTok users worldwide (end of 2020)

X 3: growth in the number of TikTok users in 3 years (271 million at the end of 2018)

2 billion: number of cumulative downloads (July 2021) of the TikTok app worldwide

3 minutes: maximum time for TikTok videos

45 minutes: average time spent on TikTok each day by a user

8: average number of app openings per day by users (USA)

14.9 million: number of monthly TikTok users in France (22% of the population)

63%: users in the 10-29 age group

$456.7 million: cumulative amount of coins purchased on TikTok

We note in particular from these key figures that TikTok is the most downloaded application in the world and that its number of users has multiplied by 3 in 3 years, bringing the number of active users to 800 million at the end of 2020, not very far from the symbolic bar of one billion users.

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What is TikTok?

Douyin (the name of TikTok in China) is a subsidiary of ByteDance, an unlisted conglomerate valued at $250 billion.

Launched in 2016, TikTok is an application mainly used on smartphones (more than 80% on Android), inspired by the concept of Musical.ly and Douyin.

Musical.ly was created in Shanghai in 2014 by Alex Zhu and Luyu Yang, who originally wanted to create an educational app. After realizing that this project would not be profitable enough, they finally opted for an App based on the creation and sharing of short 15-second music videos of popular songs. Success was rapid with 70 million downloads in 2016.

Also in 2016, Douyin was launched in China, also allowing the sharing of short videos. The App immediately met with immense success, particularly in East Asia. Musical.ly and Douyin are merging following the acquisition of Musical.ly by ByteDance on November 9, 2017 for $1 billion.

ByteDance, TikTok's parent company, was founded in 2012 by Zhang Yiming. The group operates 8 brands.

Douyin: China's leading app for short videos

Toutiao: application focused on personalized media thanks to artificial intelligence

Tik Tok: equivalent of Douyin in the rest of the world (excluding China)

Xigua Video: In addition to video sharing, Xigua Video offers film, documentary and broadcast content

Helo: personalized news and social media for the Indian market

Lark: social application for the Japanese and Singaporean markets

Babe: personalized news and social media for the Indonesian market

BytePlus: solutions for new software technologies and analytical data applications

See also our article China tightens the regulation of its economy: what consequences on the stock markets?

TikTok's business model

Before June 2020

TikTok's main source of income was based on influencer marketing through the sending of "coins" (coins on TikTok) for "TikTokers".

In short, it's like small rewards in the form of emojis for popular video creators who do live streaming.

The 100 TikTok coins are sold by the platform for $1.29, the 500 for $6.49, the 10,000 coins for $134.99.

Emojis also have different values ​​ranging from 5 coins for 1 Panda to 5,000 coins for 1 Drama Queen.

These revenues from coin sales are shared between the TikTok group and users receiving emojis. Some of the most popular members can accumulate several thousand dollars per month.

Since June 2020

TikTok for Business emerged mid-last year, offering brands to run their ads on TikTok video platforms. These advertisements are called “In-Feed”, which means that they are integrated between the video streams. TikTok also generates revenue through branded hashtag challenges.

The group offers advertisers 3 pricing formulas: the cost per view (calculated for 1,000 impressions), the cost per number of clicks on the advertisement, or the fixed cost per advertising campaign.

TikTok is also in the process of developing a “self-service” ads service.

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IPO TikTok: an IPO in 2021?

First, remember that the IPO of TikTok is not yet official. However, according to the major American financial media Financial Times, the IPO of TikTok could take place at the end of 2021 / beginning of 2022. This announcement is however far from certain, a denial having been published in the Wall Street Journal, emanating from a spokesperson for ByteDance (parent company of TikTok) following the Financial Times announcement.

The information is therefore contradictory on the possible IPO of Tik Tok. If they were to be proven, its current valuation is estimated at $50 billion and its 2020 turnover stands at $1 billion.

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What valuation for TikTok? Comparison with Facebook

According to our research, no information is available regarding the profits (or losses) of the TikTok subsidiary. We have therefore opted for a comparative and estimated approach based on Facebook data:

According to official data from Facebook, we know that the number of active Facebook users is 2.80 billion at the end of 2020 and the time spent by an average user is 38 minutes per day, or 38.836 billion minutes spent on Facebook. in the world for 1 year.

Facebook's revenue was $85.97 billion in 2020 for a net profit of $29.15 billion.

We know that TikTok has 800 million users for an average time of 45 minutes per day, or 13.140 billion minutes spent on TikTok worldwide for 1 year.

TikTok's revenue was $1 billion in 2020.

Assuming also that the marketing of TikTok manages to match that of Facebook in order to promote its activity:

Facebook generates $0.00075 in profit per minute spent on its networks ($29.15 billion net profit 2020 / 38,836 billion minutes).

Tik Tok would then generate $9.86 billion in profits (13,140 billion minutes X $0.00075 per minute).

According to this estimated methodology, with a current valuation of TikTok raised to $50 billion, the group would be paying 5 times its potential annual profit.

For information, Facebook is currently valued at $1,050 billion on the stock market, or 36 times its 2020 annual profit.

See also our Guide on How to Participate in an IPO or IPO

Should you participate in the TikTok IPO?

If formalized and introduced on thresholds of $50 billion in market capitalization, it seems interesting to participate in TikTok's IPO according to the comparative approach of TikTok / Facebook statistical data detailed previously, on condition of admitting that the marketing of TikTok acquires an efficiency similar to that of Facebook.

Indeed, we concluded that TikTok would pay on the stock market 5 times its potential annual profit against 36 times officially for Facebook.

This ratio is therefore very favorable to TikTok.

However, there is another approach which consists in calculating the ratio of valuation to turnover which results in:

50 times for TikTok (50 billion valuation / $1 billion in 2020 revenue);

12.2 times for Facebook (1,050 billion valuation / $85.97 billion in 2020 revenue).

Conversely, this ratio is favorable to Facebook, hence the complexity of these estimates.

It should also be noted that there are certain risks relating to an investment in TikTok shares, in particular that induced by Chinese legislation concerning data security, to be considered with particular attention because the Chinese government has put in place stricter regulations on data security. much of its economy in terms of personal data processing, competition and user rights. Note that this tightening of regulations particularly affects large Tech companies.

In addition, there is also an emergence of competition, such as that of YouTube Shorts or Facebook Shorts Videos.

In conclusion, TikTok is the most downloaded application in the world and in this respect its valuation of $50 billion seems reasonable, especially in view of the colossal market capitalizations of other tech companies on the stock exchange like Facebook ($1,050 billion). , Zoom Video Communications ($100 billion), or even Uber ($70 billion).

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