TikTok: Byte me

TikTok has been downloaded more than 110 million times in the US alone. Photo / Getty Images

Lex COMMENT

It took grown-ups a while to catch on to the teen video craze TikTok. As always, they are now threatening to ruin the fun.

Blame China. US lawmakers do. The Chinese startup ByteDance Technology did not seek approval from the Committee on Foreign Investment in the United States when it bought the social media company Music.ly for US$1 billion ($1.5b) in 2017 and turned it into the looping video app TikTok. Now Cfius is investigating the deal.

TikTok's addictive short videos are popular all over the world. It has been downloaded more than 110 million times in the US alone. But the company's set-up is awkward. The Beijing based mega-startup ByteDance runs two versions of the same app. In China it is called Douyin. Elsewhere it is TikTok. Content is largely kept apart. Revenues are dominated by the Chinese version. But that could change as TikTok tries to ramp up its advertising business.

How big could TikTok get? Instagram also has short videos. While Facebook does not split out the platform's revenue, analysts at Jefferies expect it to make US$14b this year. If TikTok made this much it would almost double parent company ByteDance's annual revenues.

Instagram, however, has more than 1 billion users and benefits from Facebook's formidable advertising machine. Snapchat, which has 210 million daily active users, may be a better comparison. Like Snapchat, TikTok also faces the risk of Facebook taking away users with its own version of the app. This year Snap, which is still lossmaking, expects revenues of US$1.5b.

ByteDance, privately valued at US$75b, is expected to list in Hong Kong next year. Proof of a big new revenue stream from TikTok adverts would support a high stock market valuation.

Before then the company needs to avoid becoming another casualty of merger-blocking officials. Teenagers lip-syncing pop songs do not sound like a national security threat.

But US senators worry that user data sent to China could be accessed by the Chinese government. Some also suggest TikTok censors content, including videos relating to Hong Kong protests.

TikTok denies both accusations. Chief executive Alex Zhu is on a hearts and minds mission to convince the US that there will always distance between TikTok and China. But ByteDance holds the purse strings. Until TikTok has a sizeable advertising business of its own that seems like a difficult promise to make.

© Financial Times