Social media has been one of the few segments of the economy that have benefited from the shelter-in-place environment. While ad budgets have dropped, social media engagement numbers have skyrocketed as American’s social interactions have been pushed online.
TikTok may be the biggest winner of all.
Impressive Growth Numbers
TikTok is a Chinese-launched social networking service. It’s mainly used to create short dance, lip-sync and comedy videos.
DateTrek Research recently reported TikTok has seen the largest surge in Google search volume during the coronavirus (COVID-19) shutdown. CNN recently reported that TikTok was downloaded 351 million times in the first three months of 2020, according to Sensor Tower data. TikTok now has more than 2 billion total downloads, up more than 100% from the end of 2018.
To put the 351 million first-quarter download surge in perspective, no other app ever has had more downloads in a single quarter.
Sensor Tower estimated that TikTok parent company ByteDance raked in $157 million in the first quarter, 90% of which came from the company’s original Chinese version of TikTok, Douyin. Those numbers represent a 423% increase from a year ago and a 50% increase from the fourth quarter.
Investing In TikTok
ByteDance’s most recent fundraising rounds suggest its valuation could exceed $90 billion. Unfortunately for U.S. investors, there is no easy way to buy stock in the privately owned ByteDance. However, there are some creative ways to get in on the TikTok boom.
Qualified investors can buy shares of privately-held stocks like ByteDance on secondary markets like EquityZen. These shares typically come from company insiders and employers, and the secondary market comes with its own set of risks that investors should understand prior to buying.
Private equity funds also invest in pre-IPO companies like ByteDance. However, many of these funds are restricted to high net worth individuals.
One indirect way for investors to access ByteDance is to buy shares of its other publicly traded investors. KKR & Co Inc (NYSE: KKR) and Japan’s SoftBank Group Corp (OTC: SFTBF) are among ByteDance’s largest private investors, but buyers should understand that ByteDance likely makes up only a tiny fraction of these companies’ holdings.
Potentially the best way to invest in TikTok is simply to wait. ByteDance will likely follow in the footsteps of other social media platforms like Snap Inc (NYSE: SNAP) and Twitter Inc (NYSE: TWTR) and have its own IPO in the near future. In October, the Financial Times reported ByteDance was considering a Hong Kong IPO as soon as the first quarter of 2020, but the company denied the report and said it has no immediate plans to go public.
If ByteDance or TikTok goes public in the future, investors would be wise to remember that social media IPOs have had very mixed early results in recent years. In their first year following their IPOs Facebook Inc (NASDAQ: FB) shares were down 32.2%, Twitter shares were up 55% and Snap shares were down 24.9%.
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