TikTok – No immunity.

AI can’t rescue this one.

• The general malaise in advertising is by no means limited to the big names as even TikTok which has gained a lot of market share in the last few years is feeling the pinch and has been cutting its estimates for 2022.
• TikTok’s original forecast made earlier this year was for revenues of $13.3bn but this has now been pared back to $10bn for 2022.
• This still represents significant growth from taking market share, but the drag effect of the underlying slowdown has clearly taken its toll.
• Those most impacted by the predations of TikTok (Meta Platforms and Snap) are the ones that have reported the worst deterioration in their performance in Q3 2022.
• This makes sense as these companies will have suffered as the market weakened and again as they ceded share to TikTok.
• In fact, e-marketer estimates that the US market for social media advertising (by far the biggest) will now grow by just 3.6% in 2022 down from more than 30% last year.
• Given how Alphabet and Amazon fared in digital advertising during Q3 2022, this estimate looks to me to be about right.
• Hence, Meta Platforms’ no. 1 priority right now has to be to cease ceding share to TikTok without which it probably would have reported revenue growth of around 4% rather than a decline of 4%.
• This is not going to be easy because even as user engagement is still strong at Meta Platforms, TikTok is better at understanding the nature of videos and recommending them to users that will enjoy seeing them.
• TikTok is able to do this because its parent company, ByteDance, is an AI company that has created what I think is the best video-related AI recommendation engine in the world today.
• This is why RFM ranks ByteDance as the No. 4 AI firm globally which together with Baidu and SenseTime underlines how good China is at AI.
• However, this has not been enough to prevent the company from feeling the sudden slowdown and the cut in expectations for 2022 is the result.
• Furthermore, TikTok has been losing staff due to demands to return to the office and the company’s decision to buy back shares from employees in lieu of the promised IPO that did not materialise.
• I suspect that TikTok’s woes on the staffing front are now over given how much supply is coming back onto the market, and if it wants employees in the office 5 days a week, then this will be quickly achieved without much fuss.
• This is why I think that this downturn sounds like the end of the work-from-home trend given that the labour market is now (or will soon be) a buyers’ market.
• Despite this, I think that the outlook for TikTok remains good in that it is likely to continue taking market share which will allow it to grow faster than the market.
• This downturn is also likely to instil more discipline into TikTok which by many accounts has been spending heavily and will now be forced to cut back.
• TikTok is unique in that it is one of the only Chinese Internet companies to get any real traction overseas which will also make it a target for US regulators and legislators looking for ways to contain the rise of China on the world stage.
• Barring any regulatory or US state interference, I think TikTok is in a good position to continue to take share from Meta Platforms and Snap in 2023 putting both of these companies in a difficult situation.
• I continue to think that Meta Platforms will become interesting at $70 per share as Mr Zuckerberg’s insistence on not slowing investments will hammer profitability again next year.