No startup in the world has the ability to spend billions of dollars to buy users like the parent company of TikTok.
According to a financial report shared with employees, TikTok’s parent company saw its losses from its business triple last year to over $7 billion. The reason is said to be the company’s heavy spending to continue to achieve explosive growth.
However, the report also shows that ByteDance generated an operating profit in the first quarter of 2022. This is a positive sign that proves that one of the world’s most valuable startups has begun to bear fruit sweet after years of suffering huge losses.
As a private company, ByteDance has traditionally been very cautious with information about its financial position and has not disclosed it publicly. The report, sent out to employees in August, includes information for all of 2020 and 2021 as well as the first quarters of 2022. As a result, it provides one of the most detailed looks at the industry and how ByteDance is doing and is planning for the future.
ByteDance’s revenue continues to grow by nearly 80% to $61.7 billion in 2021, but the company’s expenses have increased proportionally as it focuses on growth. Their selling expenses reached $27.4 billion for 2021, up 79% year-over-year. To meet the revenue growth rate, ByteDance had to spend a lot of money: $14.6 billion in research and development spending, $19.2 billion in sales and marketing expenses, and so on.
The report says the company’s total loss in 2021 is $7.15 billion, up from $2.14 billion in 2020.
A ByteDance spokesperson declined to comment on these numbers.
While TikTok is by far the company’s most popular product in the US, ByteDance also owns apps used by hundreds of millions of people in China – including short video app Douyin, Jinri Toutiao or Today’s Headlines. The above report does not currently have detailed data on the performance of each business segment of ByteDance.
The company’s revenue reached nearly $18.3 billion in the first three months of 2022, up nearly 54% from a year earlier. ByteDance shows it is beginning to contain costs, with a net loss for the period of $4.7 billion, down nearly 84% from $29.1 billion a year earlier.
The decrease in net loss in the first quarter of 2022 may reflect ByteDance’s adjustment of its valuation as China’s internet companies have been affected by the government’s tightening regulations on the industry.
ByteDance, founded in 2012 by Chinese entrepreneur Zhang Yiming, has raised billions of dollars from global investors including KKR & Co., Sequoia Capital and General Atlantic. The company is valued at $180 billion at the end of 2020 after a funding round led by Fidelity Investments and some of the company’s existing shareholders.
The company has postponed plans to list shares, and even the WSJ source said it is offering to buy back shares from investors at a valuation of $300 billion.
Despite the increased costs, ByteDance managed to grow cash and cash equivalents, at $42.6 billion at the end of March, up from $34.1 billion at the end of 2021. Their total assets are in $74 billion in March, up from $64.3 billion in December.
Experts agree that ByteDance’s “thick wallet” is a key competitive advantage driving TikTok’s rise in the US.
TikTok’s rise “is unthinkable” Snap CEO Evan Spiegel said last month. “There is no startup company that can afford to invest billions of billions of dollars in buying users around the world like that.”
Reportedly, ByteDance has issued the above financial statements as part of a special issue of limited shares to more than 30,000 employees of the company. “Despite market volatility, we remain confident in the strength of our business and organization” the company wrote in an email to employees.
ByteDance has more than 130,000 employees globally by the end of 2021.
Out of more than 100 financial disclosure pages, ByteDance listed 46 risk factors that employees should consider when accepting additional restricted shares. Among those risk factors is an entry that warns employees that “stocks are not publicly traded on a stock exchange and you should be prepared to hold our stock indefinitely.”
Another cited the risks involved in doing business in China. The report said that if the company fails to comply with government regulations or if those regulations change in the future, “we could be subject to severe penalties or be forced to give up our interests in those activities”.
Last year, ByteDance’s costs increased as it expanded into new areas. They have made significant acquisitions in the video television business, including in March 2021 when ByteDance spent $4 billion to acquire Shanghai Moonton Technology, the video game studio behind the hit title “Mobile Legends”: Bang Bang.
Several sources close to the matter said, ByteDance is also accelerating the hiring and research of advanced chips that support artificial intelligence and servers.
ByteDance CEO Liang Rubo said at a joint meeting in August that he was pondering the company’s bloat and was committed to cutting costs and improving efficiency. “Many ByteDance businesses have fallen short of expectations over the past year”, Mr. Liang told employees.