Tiktok | Valuation no longer justified

Bytedance and Tiktok — the world’s most valuable unicorn 2020 has been a fortuitous year for Tiktok. It’s parent company Bytedance has only recently been valued at $110 billion and is clearly world’s most valuable …

Bytedance and Tiktok — the world’s most valuable unicorn

2020 has been a fortuitous year for Tiktok. It’s parent company Bytedance has only recently been valued at $110 billion and is clearly world’s most valuable unicorn. Bytedance is not shy of its global ambitions to be in the league of Big Tech (Apple, Google, Facebook) and also to stand alongside the three unicorns of China — Baidu, Alibaba and Tencent.

It is closing on the heels of Facebook with over 2 billion downloads and 315 million users, despite being a newcomer. The monthly active time of 52 minutes per day rivals that of Instagram, Youtube, and WhatsApp. And the secret sauce of it all — the AI recommender engines are as sophisticated as any of these companies, a testimony to its 800 million active users globally.

India has emerged as potentially one of the most lucrative markets for Tiktok (and overall for Bytedance). With its thriving millennial population and a daily user spend of 38 minutes, India provided the potential of monetisation, hype and the global tag it needs to become a big Tech.

Tiktok boasts of an Indian user base of 450 million, and is not too far behind Facebook Tiktok had also launched an education program in India and has a long drawn India strategy in place. To consolidate its position in India, Bytedance had invested $1 billion and was also consolidating other apps like Vigo.

Clashes in the Galwan Valley

However, over the past week, things have changed considerably. Following the clashes between Indian and Chinese soldiers at Galwan Valley, Ladakh, India has banned 59 Chinese apps to counter the threat posted to its sovereignty and security.

According to the Chinese mouthpiece, CN Global, Tiktok can lose ~$6billion if India continues to ban the app.

Though the damage to Tiktok and its global ambitions can be much more. In the interim period when the ban is not lifted, Tiktok stands the risk of losing out on the consumer base completely by local apps which can cash on the anti-China sentiment. There are also talks of Instagram developing an app like Tiktok called Instagram Reels and other Indian telecom players can also jump in the fray.

Business Model

Over the past few years, Bytedance has honed its capability to get an edge in personalisation and recommendation. The algorithms employed by Tiktok are as sophisticated as Facebook, YouTube or Amazon, if not more and is designed to keep the user engaged.

The key difference between Tiktok and Facebook is that while Facebook, Instagram show videos and articles of a user’s own social network, Titkok’s AI engine shows videos based on the content watched and is outside the user’s social network. The videos are short, concise and come fast, and with more engagement, more data flows into the recommender engine to serve more personalised content.

For the consumer, it results in an addictive user experience, where young population of 14–30 years old spend time of approx. 52 minutes on an average. This 52 minutes of daily engagement of Tiktok is at par with Instagram (53 minutes) and Snapchat (50 minutes), and substantially ahead of YouTube (40 minutes).

So, how does Bytedance and Tiktok capitalize on this?

Tiktok makes revenue through advertising and in-app purchases. It also serves as a huge funnel for Bytedance’s portfolio of companies.

  • Advertising: Bytedance more than quadrupled its share of the advertising market, rising from 5% in 2017 to an estimated 22% in 2019, according to Totem Media.
  • In-app purchases: Tiktok enables the users to buy virtual currency and gift them to their favourite artists whose videos they would like to see. The artists, in turn can exchange the coins for gifts. Accoding to Sensor tower, the virtual currency bought by the users of US stands close to $41.3 million or 55% of global total, while users from India had spent $9 million

Impact on Valuation

In May 2020, Bytedance was valued between $100-$150 billion in the private markets. Bytedance did have global ambitions to release a music app (similar to Tiktok) and also take on Google and Microsoft by releasing entreprise software like Sheets, Powerpoint, etc.

Media and Entertainment

  • Video — Tiktok, Douyin, Xigua
  • Music — Resso and Tiktok
  • Mobile Gaming — Xiaomei


  • News — Toutiao
  • Search
  • E-commerce


  • Messaging
  • Enterprise Productivity
  • Education

Tiktok has been integral to Bytedance’s ambitions not only in terms of getting users from India and US, but also to act as a platform to launch its other solutions.

The India market was only beginning to grow when the ban was placed. As such, while the impact on revenue would be around $50 million for this year, which is just 10% of its overall revenue. The long term impact on Bytedance and Tiktok can be much higher.

The void left by the ban is increasingly filled by homegrown Indian apps while Facebook owned Instagram is also launching Instagram Reels. As such, it would be difficult to play catch up for Tiktok if it doesn’t start operating in the near term.

Back of the envelope calculation: At the current valuation of $70 billion for Tiktok and a monthly user base of 800 million, Tiktok’s average user value is ~$100. With the loss of around 450 million user Indian base (a conservative estimate), the resulting valuation would come down to $35 billion which is down by 50%.

While Tiktok has hired Disney consumer head as its CEO, the company does face a number of obstacles, including privacy concerns from its second largest user base US.

It would be interesting to see what steps Tiktok takes in its markets outside China now especially since competitors are training their guns.

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