We have been researching potential winners enabled by 5G and digitalization, even they are not public companies yet. ByteDance is at the top of the list. While we are finishing up our in-depth investment thesis, we will share some lightweight thoughts and observations here.

Founded by Zhang Yiming in 2012, ByteDance started as a news recommendation engine company. Its newsfeed product, Toutiao, successfully caught the big trend of providing AI-based personalized content to readers. In 2017, ByteDance launched its short video platform, Douyin. It later acquired Musical.ly and rebranded it to TikTok as the international version of Douyin. The short-form video app quickly becomes the number one downloaded app not only in China, but also in India, the United States, and many other countries.

As of July 2019, ByteDance announced that its MAU has surpassed 1.5 billion users globally, the first Chinese company to achieve this milestone. In 2018, ByteDance reached a valuation of $75 billion, and we expect the current valuation of ByteDance will be significantly above $75 billion since the platform's advertising revenue has taken off. We summarize some of ByteDnace's latest business developments below. 

Ad Juggernaut 

In January 2019, Bloomberg reported that ByteDance hit the lower end of their 50-55 billion yuan revenue goal in 2018. The low than expected revenue number was mainly due to ByteDance's effort to optimize its advertising algorithms. Since then, ByteDance released a large number of advertising inventory to the market. The revenue subsequently surged more than 100% in the 1st half of 2019 to 50-60 billion yuan ($7 billion to $8.4 billion). In September 2019, Bloomberg reported that ByteDance has revised up its 2019 revenue goal to 120 billion yuan ($17.1 billion). To put the number into perspective, ByteDance has now surpassed both Baidu and Tencent in terms of advertising revenue (see the chart below). The significant competition Baidu and Tencent faced in their advertising business was rightfully reflected in their stock prices: Baidu was down 57.3% and Tencent was down 29.6% from their 2018 highs.

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Adjacent Businesses

In addition to its family of the newsfeed and video products, ByteDance is also leveraging its vast user base to penetrate adjacent businesses. Some noticeable efforts include, 

• Social Media. In January 2019, ByteDance debuted its standalone video-messaging app, Duoshan. In May 2019, ByteDance announced another social messaging app, Feiliao.

• Work Collaboration. In April 2019, ByteDance officially launched its enterprise messaging and productivity app Lark in oversea markets, commercializing what used to be an internal communication tool.

• Music. On November 19th, Financial Times reported that ByteDance is in talks with the world’s largest record companies -- Universal Music, Sony Music, and Warner Music -- for global licensing deals.

US Regulation and Rebranding

As the US/China trade war is dragging on, ByteDance’s popular video app TikTok has become a target of US politicians.

• On October 24th, U.S. Senate Minority Leader Chuck Schumer and Senator Tom Cotto asked intelligence officials to investigate whether TikTok poses national security risks.

• On November 18th, WSJ reported that some employees and advisers in recent weeks have approached senior executives to suggest ways the company could rebrand TikTok, as it faces mounting scrutiny from U.S. lawmakers and regulators.