Why TikTok is so coveted… and the alternatives for investors
Investors should position themselves to opportunities at TikTok’s competitors
President Trump announced on Saturday that he has approved Oracle’s bid for TikTok’s US operation. The approval is “in concept” according to the President.
Oracle will own 12.5% of the entity, which will be named TikTok Global. Walmart will hold 7.5%. The deal requires Beijing’s approval, as as well other regulatory and shareholder clearances.
The bitter row between the US and China over TikTok has put the nose-bleed valuations of video-based social media in plain sight. ByteDance, TikTok’s parent, has been valued at US$140bn by CB Insights, making it the world’s most valuable start-up. The US operation could be worth as much as US$60bn according to Bloomberg. TikTok has 100mn users in the US. At a US$60bn valuation, TikTok would be work three times Facebook’s valuation per user of US$198. ByteDance would continue to control TikTok Global, with Oracle and Walmart as minority investors.
To put TikTok’s valuation into perspective, one notes that a company used mostly by teenagers sharing videos is worth more than any company listed in Southeast Asia. At US$140bn, TikTok’s parent ByteDance is worth more than all the Singaporean banks put together.
TikTok’s valuation premium can be attributed to three factors. First, TikTok’s userbase is emphatically in the 15–24 age group. This age group is coveted by advertisers. Facebook’s hold on this demographic has waned.
Second, TikTok’s core algorithm is its secret sauce. It may be worth almost as much as the social media value of the users. TikTok’s algorithm that selects videos for users when they open the app is highly rated and is superior to the competion. This has been instrumental in the viral spread of the app. The algorithm has been described as a “rapid, hyper-efficient matchmaker” that connects users with videos that might interest them.
Third, TikTok’s user base connects highly creative young people in a much more effective way than Facebook or Instagram. TikTok is home to a massive pool of people who make a living from the app.
TikTok represents the next stage of social media. It could also lead to an overlap between social media and e-commerce. But that said, there are alternatives to TikTok that may be able to replicate its success and are gaining traction in emerging markets.
This article first appeared on Tellimer.com. To see our selection of the TikTok alternatives, go here.
