Have you ever given a moment's thought to what the valuation of short-form video app TikTok might be? Since the app, which has only increased in popularity during the pandemic, is owned by Chinese firm ByteDance, the valuation of TikTok is not made public. Reuters reports today that we now have some idea what one of the most popular apps in the U.S. is worth and the number is stunning.
TikTok could be worth more than $50 billion
Some ByteDance investors are interested in buying TikTok and are valuing it at $50 billion according to people familiar with the matter. That valuation tops the $34 billion market capitalization that belongs to Snapchat parent SNAP, Inc. The $50 billion valuation was reportedly computed by multiplying TikTok's projected $1 billion in 2020 revenue by a factor of 50. Snap's value indicates that it is trading at 15 times estimated 2020 revenue. This means that investors see TikTok growing much faster than Snapchat is. The former is raking in cash from advertisers at a rapid rate. The $1 billion in revenue forecast is expected to rise to $6 billion in 2021.
ByteDance wants to sell TikTok so that U.S. lawmakers can't ban it. Earlier this month U.S. Secretary of State Mike Pompeo said that the U.S. government was looking at banning the app because of its ownership by a Chinese company. The U.S. seems to believe that all Chinese tech-related firms, with some exceptions, spy on behalf of the communist Chinese government. For example, the largest smartphone and networking equipment supplier in the world, Huawei, is not allowed to access its U.S. supply chain for security reasons. The Committee on Foreign Investment in the United States (CFIUS), which approves foreign purchases of U.S. companies, has brought up concerns about data belonging to the many teens and others that use TikTok, being sent to Beijing.
The report says that several investors in ByteDance, including Sequoia and General Atlantic, would have majority ownership in TikTok transferred to them after paying an amount based on the app's full value. ByteDance also says that there are other companies interested in purchasing the app. Any decision about selling TikTok will have to be approved by ByteDance founder and CEO Yiming Zhang and it might take more than $50 billion to pluck this gem away from ByteDance. One source says that the company was recently computing and discussing how high a valuation to place on TikTok and the final valuation was said to be more than $50 billion.
While ByteDance is also a private company, one of its shareholders sold a small stake in the firm earlier this year based on a valuation of $140 billion. The company, which owns several apps including the Chinese version of TikTok called Douyin, has a goal this year to generate revenue of 200 billion yuan ($28 billion). If a deal cannot be agreed upon, ByteDance will explore spinning off or selling the U.S. operations of TikTok. The operations team running the app has already been separated from the rest of the company.
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TikTok's CEO, Kevin Mayer, was snapped up from Disney in May. This was a deliberate move to make TikTok appear more American. After all, what company conjures up the red, white, and blue more than Disney. In a blog post published today, Mayer wrote, "With our success comes responsibility and accountability. The entire industry has received scrutiny, and rightly so. Yet, we have received even more scrutiny due to the company's Chinese origins. We accept this and embrace the challenge of giving peace of mind through greater transparency and accountability. We believe it is essential to show users, advertisers, creators, and regulators that we are responsible and committed members of the American community that follows US laws."