If you are not a teenager or overly fond of video content, chances are that you don’t get the hype around TikTok. But it’s highly unlikely that you don’t know about TikTok yet.
It’s one of the most rapidly growing video creation and sharing platforms that aims to “capture and present the world’s creativity.” This Chinese app penetrated the North American market partly with the acquisition of Musical.ly.
TikTok was introduced in September 2016, and in just about four years, the app boasts 2 billion downloads and 800 million active users around the globe. The hype and powerful growth surrounding this app have created a lot of anticipation around TikTok Stock.
Can You Buy TikTok Stock?
While it seems like a great opportunity, you can’t buy TikTok stock right now. Technically, TikTok is just the name of the app, and “ByteDance” is the parent company. ByteDance is privately owned and based in China. It has nine major subsidiaries, and TikTok is just one of those.
While there is a lot of anticipation around the public trading of ByteDance and investors are ready to pounce on what promises to be one of the most lucrative entertainment/tech stocks of the decade, there is nothing on the horizon in this regard.
There is a round-about way of getting exposure to this highly anticipated stock, but we will get to that later.
Potential TikTok Stock Analysis
Before you get too excited about TikTok stock, let’s take a more in-depth look into the platform and its parent company. After all, Uber was also a highly anticipated company, but its IPO didn’t break any records.
What is TikTok
TikTok is a social video platform. It allows you to make small video clips and share them on the platform where people who follow you or even random visitors can watch your videos. TikTok markets itself as the “leading destination for short-term mobile video” and as a platform that “inspires creativity and brings joy.”
One primary reason behind TikTok’s popularity, especially among millennials and Gen-Z (which is the tech-native generation), is its ease-of-use. TikTok is deceptively easy to use, and you can make your content even more fun and unique using a plethora of features and filters that the app provides.
The platform has a positive aura, and the bulk of the content on TikTok is either small funny videos, lip-syncing, social media challenges, dance videos, home, and food videos. The “bite-sized” entertainment value and fun content have made TikTok one of the most rapidly growing video platforms. It also has its fair share of “influencers,” mostly regional, and they each have their own massive following. A lot of traffic to this app can be attributed to them as well.
How Does TikTok Make Money?
That’s the billion-dollar question, several billion in fact. In the first quarter of 2020, TikTok’s parent company (ByteDance) supposedly brought in $5.6 billion in Revenue.
But how does the company make money?
This is a question that almost every user should ponder because, as the internet-adage goes, “if you are getting something for free, that means you are the product.” And since TikTok doesn’t charge you anything to create, watch, and share your videos, and all of its content is available for free, it makes money from the most common source among similar platforms: Advertisement.
TikTok is predominantly populated by teens and millennials, making it a gold-mine of impressionable audience members for savvy marketers. Advertisers and brands get access to five different types of ads when they work with TikTok:
- In-Feed Ads/Native Video Ads: Ads you see between user videos on your TikTok feeds. They are made potent with Call-To-Actions (CTAs).
- Brand Takeover Ads: Ads that pop-up as soon as you open the app.
- TopView Ads: The ads you see at the top of your “For You” feed.
- Branded Hashtag Challenges: Branded hashtag challenges are a clever way of making a brand’s users/viewers the advertisers.
- Branded Affects: TikTok is full of filters and fun effects, and many of them now come with advertiser’s branding.
The different kinds of “harmless” ads that you can scroll past or skip, or not engage in are how TikTok makes money. TikTok is rising in popularity, and it’s not a mature market yet, so the chances of its revenues going down anytime soon are relatively low.
Number of TikTok Users and Growth
This is TikTok’s chief selling point. The app boasts 800 million worldwide users, and it has been growing at a remarkable pace. This makes it the seventh most-used social media platform, just behind Instagram.
This is a frightening growth rate, especially if you consider that it was only launched for international markets in September 2017. It started big right off the gate in many Asian countries, and soon it became a global phenomenon. Its growth was empowered by the acquisition of another Chinese-based app with a similar following “Musical.ly.”
The app has been downloaded over 2 billion times. Its monthly active user numbers have been climbing up since 2017 at an alarming rate. The number crossed 300 million in 2018, reached 600 million in 2019, and it’s already 800 million. It’s likely to cross the one billion active user mark by the end of 2020.
The number of users alone isn’t the major revenue generation factor. Most marketers and brands are still focused on Facebook and Instagram, but this focus is slowly shifting to TikTok, especially for brands that target a young consumer-base. This trend won’t follow the user-base growth, and the revenues might keep growing even when the user-base hits a crest.
According to Wikipedia, ByteDance, the parent company of TikTok, was worth about $100 billion as of May 2020. Reuters in July reported that the company was valued at $140 billion. The most recent valuation of the company is estimated at $180 billion (by multiple sources, including Business Insider). The news is that the company is talking to its current investors and hoping to raise $2 billion more before its Hong Kong public offering.
TikTok’s potential is evident in its numbers and growth, but it’s tied to some other factors as well. International politics might have huge sway over the stock’s performance and its long-term growth. US President Trump already took a crack at the app, and it’s not predictable what a partial US ownership would entail for the company’s stock.
Other factors that would impact TikTok stock potential include where it’s offered publically and how much of it is bought by institutional investors before it’s available to retail US (and potentially Canadian) investors in their home markets. Partial ownership by a US tech giant like Microsoft might make the stock more lucrative.
Chances of a TikTok IPO
There are chances of a “partial TikTok IPO.” Partial in the sense that ByteDance, the parent company of TikTok, might not have an IPO. But a new company is being created called “TikTok Global.” It will be the international wing of the ByteDance that will control the US operations of the TikTok app. ByteDance shared in September that TikTok Global will have an IPO, but it didn’t offer a specific date.
A pre-IPO round is expected to leave ByteDance with an 80% stake in TikTok Global. Two major players, i.e., Oracle and Walmart, have already stated that they would buy 12.5% and 7.5% of the company, respectively.
Another news on the IPO front is that ByteDance might offer a large chunk of its international business and open it for the public on the Hong Kong Stock Exchange.
Potential TikTok Stock Price
IG, one of the major providers of contracts for differences (CFDs) globally, has priced the company between $186.5 (bid) and $204.5 (offer) as of now. The price is based on the $200 billion market capitalization that the company is expected to hit after its first trading day. This seems to be the most valid prediction of the potential TikTok stock price.
How to Get Indirect Exposure to TikTok
As you might have concluded by now that the best way to get exposure to the TikTok stock is buying a stake in the parent company, “ByteDance.” But that’s probably not going to happen since the company might not be opened for US investors. Buying it on an international exchange (Hong Kong most likely) might not be worth the additional cost unless you can invest a hefty sum.
Your best chance to get exposure to TikTok is buying into its US, Canadian, Australian, and New-Zealand business wing, i.e., TikTok Global, when and if the company is offered to the public in the open market.
That said, you can invest in the parent company “ByteDance” right now, through the CFD. You can go both long and short on the company, which means that you can “invest” on the notion that the stock would go up (going long) or it might tank (going short).
But that is for seasoned investors, and it doesn’t matter whether you can predict the fundamental value of the company and account for the investor sentiment surrounding the stock. Just the decision to delay the IPO can have huge repercussions for the potential stock price.
How to Buy Stocks in Canada
Since TikTok stock isn’t available to purchase yet, consider buying other types of stocks. My two favourite ways to buy stocks in Canada are the following:
- Questrade – Canada’s leading discount broker, I use Questrade to trade most of my stocks. It has a desktop and mobile trading platform. It will cost between $4.95-$9.99 per stock trade in commissions. With this special offer, you can get $50 of commission-free stock trades here
- Wealthsimple Trade – Better known as a robo-advisor, Wealthsimple has now released this fantastic trading platform that now comes in both desktop and mobile versions. All Canadian stock and ETF trades are commission-free. Get a $10 signup bonus when you sign up here.
Despite the powerful growth and popularity of the app, the stock can go either way. It can be a huge success and make its investors rich within a few months of the IPO, or it might turn out to be a hyped-up bust. Investing in either outcome with more credible information might be incredibly risky.