China's ByteDance Plans TikTok Global IPO: What We Know So Far

To say that ByteDance’s video-sharing app TikTok is taking the world by storm would be an understatement.

In just four short years, TikTok’s popularity has exploded, cementing its status as one of. the fastest-growing social media platforms and apps in the world.

FYI: We are on out TikTok as well… Follow us for fun personal finance content on the app.

According to data firm DataReportal, the social platform is the seventh most used social platform in the world, with 800 million active users worldwide.

That’s more than popular social platforms like Reddit, Snapchat, Pinterest and Twitter.

Not to mention that Douyin, the China version of its app that runs on a separate network to comply with China’s censorship is just behind Reddit, with 400 million active users worldwide.

But, the social media platform’s staggering growth has drawn scrutiny about the social media platform, as many analysts are claiming that the app collects an excessive amount of personal data and that its parent company, the Beijing based ByteDance is being controlled by the Chinese Communist Party.

The social media platform has also been caught in the middle of the US and China’s worsening relationship, with political tensions escalating.

TikTok was about to be banned by the Trump administration on 20 September, but President Trump has just announced that he has approved the deal to restructure TikTok’s US operations.

ByteDance will partner with Oracle and Walmart to form a new entity called TikTok Global that will be headquartered in America.

As such, this deal is important for investors to monitor, as the eventual resolution will have a great impact on companies like Walmart and tech firms Facebook, Snap and Oracle.

Here is what we know about the deal so far and the planned Initial Public Offering (IPO)!

Note: as the story is still evolving, we will update this article with any new developments.

TL; DR: Tik Tok Global IPO: What We Know So Far

14 August 2020 – US President Donald J. Trump issues an executive order that gives ByteDance just 90 days to sell TikTok’s US operations.

18 August 2020 – Oracle reportedly announced its interest in acquiring TikTok US, Canadian and New Zealand operations, having held talks with its parent company ByteDance and its US investors like General Atlantic and Sequoia Capital. Its main competitor is Microsoft, as the tech company was also reportedly interested in acquiring TikTok.

24 August 2020 – TikTok filed a lawsuit in America to challenge the proposed ban on the grounds that the executive order’s use of the US International Emergency Economic Powers Act is denying TikTok due process.

27 August 2020 – Walmart and Microsoft announced a partnership on a bid to acquire TikTok’s US, Canadian and New Zealand operations in a deal worth about US$25 (S$33.8) billion.

14 September 2020 – ByteDance announces that they will be entering a partnership with Oracle and Walmart in a deal for TikTok’s US operations that does not involve a complete sale of the app to Oracle. This partnership will lead to the formation of a new entity TikTok Global. ByteDance is also planning for an IPO for this new entity about a year later.

19 September 2020 – Speaking to reporters, Trump announced that he has approved the Oracle, Walmart and TikTok deal that would allow TikTok to continue operating in the US.

“I have given the deal my blessing — if they get it done that’s great, if they don’t that’s okay too, I approved the deal in concept.”

20 September 2020 – The US Department of Commerce announced an extension of the TikTok ban deadline to September 27, 2020, at 11:59 p.m

What is TikTok?

To gain a better understanding of the deal, you will need to know a bit more about TikTok or Douyin as it is known in China.

The social media platform is owned by parent company ByteDance, a technology company that was founded by Zhang Yiming back in 2012.

The company which is headquartered in Beijing started Douyin in mainland China back in September 2016.

In a bid to go global, ByteDance launched TikTok, the global version of the app on iOS and Android in 2017. ByteDance also acquired Musical.ly, an app that was very similar to TikTok for about US$1 (S$1.35) billion in November 2017.

This was a way for TikTok to break into the lucrative US market, as Musical.ly already had a sizeable American audience.

Subsequently, Musical.ly was merged with TikTok and all Musical.ly accounts were automatically transferred to TikTok.

As of today, ByteDance runs TikTok for an international audience and Douyin for the mainland Chinese audience. The apps are almost identical but do not have access to each other’s content.

TikTok’s concept is deceptively simple.

Users create, share and consumer short-form video content of 3 to 15 seconds and lopping video content of 3 to 60 seconds on the app.

The content you can find on the app largely revolved around lip-syncing, dancing, comedy skits, and other physical activities.

What sets them apart is their highly coveted proprietary algorithm.

The app was also growing explosively in America, as the number of active monthly users in the US grew from 11 million at the start of 2018 to about 100 million now.

However, the growth of this app invited scrutiny from the Trump administration as it moved to ban Americans from downloading TikTok in an executive order.

Timeline of Events

14 August 2020 – US President Donald J. Trump issues an executive order that gives ByteDance just 90 days to sell TikTok’s US operations.

18 August 2020 – Oracle reportedly announced its interest in acquiring TikTok US, Canadian and New Zealand operations, having held talks with its parent company ByteDance and its US investors like General Atlantic and Sequoia Capital. Its main competitor is Microsoft, as the tech company was also reportedly interested in acquiring TikTok.

24 August 2020 – TikTok filed a lawsuit in America to challenge the proposed ban on the grounds that the executive order’s use of the US International Emergency Economic Powers Act is denying TikTok due process.

27 August 2020 – Walmart and Microsoft announced a partnership on a bid to acquire TikTok’s US, Canadian and New Zealand operations in a deal worth about US$25 (S$33.8) billion.

14 September 2020 – ByteDance announces that they will be entering a partnership with Oracle and Walmart in a deal for TikTok’s US operations that do not involve a complete sale of the app to Oracle. This partnership will lead to the formation of a new entity TikTok Global. ByteDance is also planning for an IPO for this new entity about a year later.

19 September 2020 – Speaking to reporters, Trump announced that he has approved the Oracle, Walmart and TikTok deal that would allow TikTok to continue operating in the US.

“I have given the deal my blessing — if they get it done that’s great, if they don’t that’s okay too, I approved the deal in concept.”

20 September 2020 – The US Department of Commerce announced an extension of the TikTok ban deadline to September 27, 2020, at 11:59 p.m

Details of The Oracle and Walmart TikTok Deal

According to Bloomberg, this deal will result in the formation of a new company: TikTok Global.

China’s ByteDance Ltd. is aiming for a valuation of US$60 (S$81.3 billion) for TikTok.

Oracle and Walmart will be offered a combined 20 per cent stake in the new company, with Oracle owning 12.5 per cent and Walmart owning 7.5 per cent.

TikTok Global will be headquartered in the US and will serve American users and the majority of users worldwide.

To address America’s national security concerns, Oracle will host TikTok on its secure cloud services.

The deal will not involve any significant transfer of TikTok’s proprietary technologies like its algorithms to Oracle, as according to Bloomberg, China had recently implemented artificial intelligence technology export restrictions that prohibit this type of transfer without the approval of the Chinese Government.

However, according to ByteDance, Oracle will have access to TikTok Global’s code and will be allowed to conduct security checks.

As such this deal will be more of a partnership rather than a full-on sale.

ByteDance has also stated that TikTok Global’s board of directors will consist of members like Walmart’s chief executive Doug McMillon, ByteDance founder Zhang Yiming and the current directors of ByteDance.

But, it remains to be seen if China will allow this deal to proceed as earlier this month, Reuters reported that the Chinese Communist Party (CCP) stated it would rather see the app shut down in the US than allow a forced sale.

TikTok Global IPO Plans

Earlier today (21 Sept 2020), ByteDance announced its plans to take TikTok Global public in an IPO in about a year’s time, stating that:

“TikTok Global will also launch a listing plan to further enhance its corporate governance structure and transparency,”

ByteDance also added that it plans to run a pre-IPO round, which will see the company retaining an 80 per cent stake in TikTok Global. The company is also claiming that the new entity will remain as a ByteDance subsidiary.

Details of the deal are a bit conflicted as Oracle and Walmart have stated that American investors will retain a majority ownership stake in TikTok Global.

This discrepancy is cleared up when you look at TikTok’s parent company ownership. CNBC reporter Alex Sherman has stated that about 40 per cent of ByteDance is owned by US venture capital firms like General Atlantic, Sequoia Capital and other companies.

Why This Matters

It seems that money and influence talks.

Oracle’s co-founder Larry Elison is close to President Trump, as he organised a fundraiser for him in 2020. The company’s CEO Safra Catz was also on worked on the executive committee for the Trump transition team in 2016.

This deal could be a great opportunity for Oracle to boost its struggling cloud computing business and reinvent itself with this pivot to TikTok. This might give the company a short-term boost.

But, I would like to point out that Oracle has no experience running a social media platform. This might give the company a short-term boost.

This news is also not positive for TikTok’s competitors like Instagram and Snapchat, who would have welcomed the decision to boot TikTok out of the US.

Curious About How People Make Money on TikTok?

Join the discussion over at our SeedlyCommunity where you’ll find information about this company and more!