It’s a damn good thing we never let another MTV build a business on our backs.

In case you were wondering, the founder of TikTok’s parent corporation Bytedance is now reportedly China’s richest man according to the Hurun Rich List at a net worth of US$49.3 billion.  Is that because of “profits”?  Ah, no.  It’s due to his share of the Bytedance stock valuation. This is why any royalty deal with Big Tech that is based solely on a percentage of revenue rather than a dollar rate based on total value is severely lacking.

Revenue is a factor in determining stock valuation, of course.  ByteDance’s first-half 2024 revenue increased to $73 billion, making Bytedance’s revenues almost as big as Facebook but potentially growing faster. (Meta/Facbook’s first half  revenue increased about 25% to $75.5 billion.)

But where does TikTok’s revenue come from? ByteDance’s international revenue reached $17 billion in the first half of 2024, largely driven by TikTok. Non-China revenues for ByteDance rose by nearly 60% during this period. ByteDance continues to leverage TikTok to expand into international e-commerce, sustaining its global popularity. So the company is throwing off a pile of cash–yet they are unable to come up with a functioning royalty system.

Then what would a Bytedance IPO price at?  We kind of have to guess because Bytedance is not publicly traded and doesn’t report its financials to the public (and even if they did, China-based companies got special beneficial treatment during the Obama Administration so PRC companies haven’t reported on the same basis as everyone else until recently).  Continuing the Meta/Facebook comparison, Meta has a market capitalization of $1.4 trillion give or take, while ByteDance’s valuation on the secondary market for private stocks is about $250 billion, according to a CapLight subscriber. 

That gap is not lost on our friends at Sequoia China and other influential investors in Bytedance such as Susquehanna,  SoftBank, and  General Atlantic.  And, of course, the Chinese Communist Party investing through its Cyberspace Administration of China owns “golden shares” in Bytedance that allows it to name directors to the board.  These cats did not put up cold hard cash for a distress asset sale of Bytedance’s principal operating unit aka TikTok.  

Assuming a constant growth rate, Bytedance is trading at a paltry 1.7x 2024 revenues compared to Meta which is trading at about 8.7x its revenues.  There are some difference, like operating profits:  Meta has a 38% operating margin compared to Bytedance at about 25%.  But we all know why Bytedance’s valuation is depressed—the TikTok divestment which seems to be on track to happen on or about January 19.

The Protecting Americans from Foreign Adversary Controlled Applications Act aka the TikTok Divestment Act, Bytedance must sell TikTok.  There’s a pretty good argument that the divestment is enforceable for a variety of reasons.  The law applies not only to TikTok, but also to any entity controlled by China, Iran, North Korea or Russia that distributes an application in the United States.  That’s a pretty significant barrier to IPO riches, or at least one major risk factor that could sour underwriters if not investors.  How to get around it?

As we saw with the Music Modernization Act that solved Spotify’s IPO issues due to the company’s massive copyright infringement business model, if you spread enough cash around Capitol Hill, it’s astonishing what can happen with the vast number of people on the take.  Whatever it costs, lobbyists and lawmakers are cheap dates compared to IPO riches.  Even so, it doesn’t look like the US government is quite ready to allow one of the biggest foreign agent data harvesting and user profiling operations in history to get its snout in the public markets trough.  At least not yet.

But an argument could be made that Bytedance is missing about $1 trillion in market cap.  Greed and resentment are a powerful combination.  To add insult to injury, even Triller managed to get to the public markets, so things could start to get weird while Mr. Tok watches his paper billions evaporate.