Market Analysis

Market Analysis
Economic Calendar
Newsflash

Open Account

ByteDance US Investors See China Business as Buffer Against TikTok Ban

Mellissa · 19 Feb1.4K Views

Image Credit: Bloomberg

As TikTok faces mounting pressure to remain operational in the U.S., investors in its parent company, ByteDance Ltd., are reassessing the company's financial future. ByteDance, which was valued at over $300 billion late last year, has seen its prospects clouded by uncertainty around the U.S. market.

However, some American investors remain confident that the company’s significant revenue generation in China will drive its long-term success, even if TikTok’s operations in the U.S. face obstacles.

ByteDance’s business is primarily driven by its China operations, which account for roughly 80% of its revenue. Its domestic market apps, like Douyin (the Chinese counterpart to TikTok), contribute to its substantial earnings.

While TikTok has 170 million users in the U.S. alone and is hugely popular globally with over 5 billion downloads, its revenue potential in other markets—beyond the U.S.—remains significant. This could help ByteDance thrive even without its U.S. presence.

A potential resolution to TikTok’s future in the U.S., whether that involves a ban or another form of action, could potentially open the door for ByteDance to move forward with an IPO, which has been speculated for a long time. However, the uncertainty surrounding TikTok’s future in the U.S. continues to dampen ByteDance’s valuation in private markets.

According to Greg Martin, managing director at Rainmaker Securities, ByteDance is currently trading at a steep discount because of the unknowns related to TikTok's fate. He added that if the TikTok situation were resolved, ByteDance’s value could rise dramatically.

TikTok has been in a state of limbo since the U.S. passed a national security law last year, which demanded ByteDance either divest its U.S. operations or face a possible ban.

While the deadline for the divestiture passed in January, former President Donald Trump extended the timeline, giving ByteDance more time to negotiate a deal to address U.S. concerns about its Chinese ownership.

This uncertainty has created stress among ByteDance’s shareholders, many of whom are U.S.-based. Approximately 60% of ByteDance’s shares are owned by non-Chinese investors, who have collectively invested around $19 billion into the company. These include major U.S. firms such as Sequoia Capital, General Atlantic, and Susquehanna International Group.

Some of these investors hope to see TikTok continue its U.S. operations as its large user base offers significant growth potential, particularly in the lucrative U.S. advertising market. However, they acknowledge that TikTok's U.S. business represents a relatively small portion of ByteDance's overall revenue, with estimates placing it at around 10%.

Other investors, such as Mitchell Green of Lead Edge Capital, believe that ByteDance’s overall business—especially in China—holds substantial promise regardless of what happens with TikTok. Green pointed out that ByteDance has a wide range of popular products in China, including Toutiao (a leading news platform) and Douyin. Additionally, ByteDance has made significant strides in AI, with its product Doubao competing with giants like DeepMind.

Although TikTok’s U.S. market is not yet profitable, it remains one of ByteDance’s highest-potential areas, especially as e-commerce gains traction through TikTok Shop. The U.S. also represents the world’s largest advertising market, with companies like Meta Platforms (parent company of Facebook and Instagram) deriving a significant portion of their revenue from U.S. users. This makes TikTok's U.S. operation a key growth driver, even though the app has yet to turn a profit.

If ByteDance is able to retain control of TikTok in the U.S., the company’s valuation and potential for an IPO could improve significantly. Alternatively, if ByteDance decides to sell TikTok, the deal could still result in significant payouts for investors, with some analysts estimating TikTok’s value at between $20 billion and $150 billion, depending on the structure of the sale.

For investors, this could translate to payouts ranging from $12 billion to $90 billion, with some of ByteDance's largest shareholders—including Susquehanna, General Atlantic, Sequoia Capital, and SoftBank—standing to benefit greatly.

Despite these potential payouts, ByteDance has maintained that TikTok U.S. is not for sale. Reports indicate that the company has written down the value of its U.S. TikTok operations in recent quarters, reflecting the uncertainty surrounding its future. ByteDance’s management is exploring other options, such as keeping TikTok operational in the U.S. without a full sale, according to reports from General Atlantic’s CEO.

For now, American investors are taking a wait-and-see approach, hoping for a resolution to the geopolitical issues surrounding TikTok.

While the company’s future remains unclear, many investors believe that ByteDance’s broader business prospects, especially its operations in China, will continue to make it a compelling investment.

Ultimately, these investors just want to see the ongoing uncertainty surrounding TikTok’s U.S. fate resolved, whether through continued operations, a sale, or another arrangement.