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[What The Financials] Despite TikTok Success, ByteDance Earned Almost Nothing From India Business In FY19

[What The Financials] Despite TikTok Success, ByteDance Earned Almost Nothing From India Business In FY19

ByteDance has around 300 Mn monthly active users in India

ByteDance (India) Technology Pvt Ltd is owned by the group company TikTok Pte Ltd

Most of ByteDance India’s revenue comes in from parent company

Over the last few years, as India’s access to the internet has grown manifold, one of the booming interests for new internet users has been social media. Combine it with the increasing interest of companies in Tier 2 and 3 markets, vernacular touch and easy access to video content, and you capture the interest of all the Indian internet users.

This has been best played and witnessed by Chinese media giant ByteDance in the last few years of its Indian journey. Launched in India in 2017, ByteDance has around 300 Mn monthly active users in India across TikTok, Vigo Video and Helo. German database firm Statista says TikTok alone has 200 Mn users, of which 120 Mn are active on a monthly basis, compared to 300 Mn Facebook users in India.

The company claims to have already invested $100 Mn in the market and is now planning to invest $1 Bn more.

But one look at its financials and the question is — where is this money? At least not on the books of ByteDance (India) Technology Pvt Ltd, the company’s Indian subsidiary.

We noted that ByteDance (India) Technology Pvt Ltd is owned by the group company TikTok Pte Ltd. The company has defined itself as being “engaged in the business of facilitation and backend support services including ops, marketing, and sales support services for various application platforms to TikTok Pte Ltd at mark up costs incurred by the company. It also arranges to provide advertisement space on the various application platforms owned by the group company TikTok Pte Ltd.”

This paragraph is crucial as it explains ByteDance India’s business model for FY 18-19

We also noted that the company only has INR 69.01 Cr as capital and TikTok Pte Ltd holds 99% of the stake with a 1% stake of ByteDance (HK) Limited.

Further, the company filings for FY19 showed that it had a profitable year with INR 3.38 Cr. However, the sources of income have a different story to tell.

ByteDance India: What About Income From TikTok Success In India?

In terms of user acquisition and retaining users, ByteDance in India has had a successful run across its apps. The company’s continuous investments in the market have got competitors also ramping up their investment in India too. However, the interesting part of company’s journey in India is its claim to fame of being profitable.

The filings show that the company’s operational revenue for FY19 is INR 43.68 Cr. This constitutes the sale of services i.e. service fee for INR 41.5 Cr and advertisement fees of INR 2.16 Cr respectively. Essentially, ByteDance India earned a negligible amount from its India business directly, and relied on payments from the parent company.

Interestingly this service fee comes in from TikTok Pte Ltd as revenue from services and is recognised on a cost-plus basis and billed as per the terms of the service agreement between ByteDance India and TikTok Pte Ltd.

It is to be noted here that service fees are almost 95% of the company’s total income of INR 43.72 Cr. So it raises the question: Why is ByteDance India not able to monetise its Indian business despite soaring success for its apps?

ByteDance: Spending Up To 31% On Content And Advertisement

On analysing the company’s expenses, the biggest expense among the total expenditure of INR 40.21 Cr  in India is the 31% spent on advertisement and content expenses.

However, it is easy to understand the advertisement part of this investment, which is part of the company’s acquisition strategy. But what exactly are the content expenses for ByteDance has not been clarified. Further, the company has spent 33% of its total expenses on contract employees.

With INR 13.62 Cr spent on contract employees for FY19, one of the interesting points here is that there is no expense on employee benefits. The company financials have no line items for salary or wages of employees or anything else that indicates it pays them benefits.

Some of the other expenses for ByteDance in India is travelling, legal and professional fees, etc. On legal issues, the company has spent INR 1.09 Cr. This can be seen in reference to a PIL filed earlier this year against ByteDance for evading norms under the Information Technology Act, 2000 and allegedly spreading child pornography.

As a result of such complaints, ByteDance’s TikTok was even banned for nearly 20 days in the country. However, at a time when Indian companies are busy burning cash to grow, it is a surprise that ByteDance is claiming profitability. However the caveat is that the income has come from its parent company rather than its users and popularity in India.

Author

Bhumika Khatri

Inc42 Staff

Hailing from a business-oriented family, Bhumika has always been crunching numbers in her head. Words are her escape and she looks to find hidden startup stories. Reach her on [email protected]

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