ByteDance's TikTok woes are never-ending sideshow

Kuaishou Technology

14/03/2024 03:27

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Robyn Mak
       HONG KONG, March 14 (Reuters Breakingviews) - TikTok's
Chinese parent is stuck in a Washington doom loop. Four years
after then U.S. president Donald Trump tried to ban the popular
short-video app, lawmakers on Wednesday passed a bill giving
ByteDance six months to divest its American assets or face a
ban. It escalates a seemingly endless fight for the
privately-held company led by co-founder and CEO Liang Rubo.
    Washington's latest assault on TikTok, which critics label a
national security threat, has a sense of deja-vu. In 2020, Trump
tried to force an auction of TikTok's U.S. operations in which
Walmart  WMT.N  and Oracle  ORCL.N  were rumoured buyers. Since
then, more than two dozen states have banned the app from
government phones; Montana went as far as blocking TikTok, only
to have the decision overturned. Any definitive action from
Washington will take time as the bill grinds it way through the
Senate, where many prominent lawmakers have yet to endorse it. 
    The distraction is costly and will make it harder for
ByteDance to focus at home, where it operates TikTok's sister
app, Douyin. The company faces a slowing economy, fierce
competition from Alibaba  9988.HK  and Tencent-backed Kuaishou
 1024.HK , and Beijing's tightening regulations on everything
from video-streaming to video games to artificial intelligence.
Against this backdrop in its largest and most important market,
the company is trying to offload non-core assets and retrenching
to focus on Douyin, e-commerce and local services like food
delivery. 
    The rejig is substantial. Earlier this year, ByteDance
confirmed it was in talks with prospective buyers to sell its
gaming assets, after Reuters reported it was looking to offload
a studio it acquired in 2021 for $4 billion. ByteDance may also
be rethinking its virtual reality business, Pico. Last month,
the head of Douyin also resigned. Nonetheless, ByteDance is
managing its growing list of problems surprisingly well. 
    Thanks to advertising and e-commerce, revenue surged 30% to
$110 billion last year, according to Bloomberg. Earnings before
interest and tax in the three months to June alone hit $9
billion, per the Financial Times, helping the company boost its
cash pile to $51 billion. In the United States, TikTok claims
170 million users, 70% more than in 2020. 
    That success offers some relief. But the TikTok saga means
the company is unlikely to push ahead with an initial public
offering. To that end, ByteDance has been steadily buying back
shares; most recently from investors at a $260 billion
valuation, down from $300 billion last summer. The purchases
ease some of the pressure from employees and backers that
include Japan's SoftBank Group  9984.T  and U.S. firms KKR and
General Atlantic. ByteDance has had to be creative but its
fortunes have not fallen too far. 
    Follow @mak_robyn on X
    
    CONTEXT NEWS
    The U.S. House of Representatives passed a bill on March 13
that would give China's ByteDance about six months to divest its
U.S. TikTok assets or face a ban in the country. 
       The bill passed 352-65 in a bipartisan vote, but it faces
a more uncertain path in the Senate where some favor a different
approach to regulating foreign-owned apps. Senate Majority
Leader Chuck Schumer said the Senate will review the
legislation.
    TikTok said in a statement, “The government is attempting to
strip 170 million Americans of their Constitutional right to
free expression.”

 (Editing by Una Galani and Katrina Hamlin)
 ((For previous columns by the author, Reuters customers can
click on  MAK/   
robyn.mak@thomsonreuters.com; Reuters Messaging:
robyn.mak.thomsonreuters.com@reuters.net))