Over the past few years, the short form video app Tick Tock has taken the World by storm. Just five years after their launch in 2016, Tick Tock achieved the Milestone of 1 billion monthly active users, making it the second most popular social media platform outside of China behind only Meta. Every day, people around the world spend more than a billion hours mindlessly scrolling through their Tick-Tock feeds. Tick Tock has grown so big that even Zuckerberg is now worried about it threatening his Monopoly position from the outside.

Tick-Tock looks Unstoppable gobbling up billions of hours of people's time. But before the social media app can take over the world, they still have one big problem to solve. They're losing money and a lot of it. Tick Tock is burning billions of dollars per year and the more they've grown, the worse it's gotten in this video, we'll look at why Tech Talk is having such a hard time translating its enormous scale into a profitable business.

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So go to Public.com WSM to start getting five and a half percent yield on your cash backed by the US government. Link In the description below, Tick Tock is owned by a massive Chinese tech company called Bite Dance. They operate two apps do Yin in China and Tick Tock outside of China. The two apps are basically the exact same thing.

The only difference is do Yin enforces censorship and other restrictions to comply with Chinese laws. Bite Dance is not publicly traded so they don't disclose their financial statements. However, we can still get some information. All of Tick Tock's European operations are owned by a subsidiary called UK.

The UK requires large companies to publish audited financial statements, even if they are not listed on any. Stock Exchange They first started monetization in 2019. by 2021, their revenue had exploded to the equivalent of 1 billion. US Dollars Remember, while this subsidiary is called Tiktok UK, it represents the company's operations across all of Europe While the revenue growth has been impressive, their profitability metrics are appalling.

Their cost of goods sold was also about 1 billion dollars. This means their revenue isn't enough to even cover the direct cost of operating the platform. They also had substantial sales and marketing and administrative expenses, yielding an operating loss of 900 million dollars. This resulted surprising because Tick Tock is very popular in Europe According to the market data firm business of apps, Tick Tock had 138 million annual users in the continent for the year of 2021.

Like any social media company, Tick Tock's primary source of Revenue is advertising. As you scroll through your feed every few minutes, you'll see an ad. The ad takes the same format as regular videos with one billion dollars of Revenue and 138 million users. Tick Tock made about seven dollars per user in Europe in 2021.

For comparison, Meta, the owner of Facebook and Instagram made 65 dollars per user in Europe almost 10 times what Tick Tock made. This is not for a lack of Engagement The average Tick Tock user spends one and a half hours per day scrolling on the app. So why are they having so much trouble turning this into Revenue at the end of the day? Tiktok customers are not their users. it's the brands that advertise on the platform.

for companies to spend money on Advertising They need to be confident that they'll receive a return on their investment. That's where Tick Tock has struggled in. October Of 2022, the digital advertising firm Creatapi conducted an experiment of advertising efficiency. for Tick Tock YouTube Shorts, Pinterest and Instagram reels, they spent a few hundred dollars on each platform to run the same short form video ad and compared how well each one converted to sales.

They spent about 700 on each platform. In terms of number of AD Impressions Tick Tock was the cheapest For 737 dollars. they got 155 000 people to see the ad. This translates to 4.74 cents per 1000.

Impressions That makes Tick Tock the cheapest of the four platforms, but just getting someone to view your ad isn't what matters. What really matters is how many of those Impressions result in a sale. Creatopee also tracked how many people clicked into the ad and went to the product's landing page. YouTube Shorts had the best results by far with 366 landing page visits.

Tick Tock was much worse with only 165 visits. Instagram Reels was even worse with 44 visits and Pinterest was a complete failure, yielding only five visits. There are a few theories as to why YouTube performed so much better: YouTube tends to have more educational and serious content while Tiktok and Instagram reels are Mindless dancing videos and comedy skits Tick Tock and Reels users are so engrossed in the videos that they don't want to disrupt their viewing sessions to buy a product. The platforms are too addictive for their own good.

Tick Tock does have better performance than Reels, but that's like being the tallest kid in kindergarten. Meta unveiled Instagram Reels in 2020 as a competitor to Tick Tock. While it has been very popular in terms of viewership, they've had a much harder time with monetization. Recently, Meta has been de-emphasizing reels as they want people to go back to their regular Instagram feed, which is much more profitable.

When you're scrolling through the regular Instagram or Facebook feed, you're not nearly as engrossed, so you're much more likely to leave the app to buy a product that you saw on an ad. This is much more attractive to advertisers. There's an argument to be made that Tick Tock's actual marketing Effectiveness is underappreciated while you're watching Tick Tock You're sewing gross in your viewing session that you don't want to leave the app to buy the product immediately, but the next day, if you're doing online shopping anyway, you might remember the product you saw on Tick Tock and buy it. In this case, The Advertiser has no way of knowing that the ultimate intention came from Tick Tock.

Thus, it's very hard to know how much sales The Tick Tock campaign actually generated. Another problem is that many Brands advertise on Tick Tock organically. They create humorous Tick Tock videos and jump onto the latest trends. The videos can go viral and get hundreds of thousands or even millions of views without any paid marketing.

If you're already getting millions of views organically, why pay for more views? The reality is that short form video content just isn't conducive to Performance Advertising Tick Tock knows this, so they're investing billions to create alternative monetization strategies. While Tick Tock is losing money, Bite Dance itself is extremely profitable. According to unconfirmed Media reports, the company made over 20 billion dollars of ebitdot in 2022. This is because the Chinese version of the app do Yin is profitable.

They've been using the profits from Do Yin to fund the losses at Tick Tock Dohyan also generates revenue from advertising, but most of its Revenue comes from live streaming similar to Twitch. Influencers can live stream on Doyin and their fans can send them virtual tips. Dovian takes a 50 cut of the tips. Also, influencers can sell products directly to their followers.

Do Yin takes a five percent cut of the gross value of all products sold through the platform. This has become extremely popular in China with people from all walks of life selling things on the platform. Some Farmers even turn to the app to sell their produce. This type of advertising can be extremely effective.

The influencer often sells products he or she makes themselves, making it feel more authentic. And because it all happens within the app, you don't have to disrupt your viewing session to place an order. Do Yin is profitable because a successfully Diversified their revenue streams Beyond advertising. but can Tick Tock do the same? Tick Tock has live streaming and e-commerce features just like doing.

The problem is, live streaming is not nearly as popular in the West. In 2022, it is estimated that live streaming e-commerce sales reached almost 500 billion dollars in Gross merchandise value in China. In the US, it only generated 11 billion dollars of Gmv about 2 percent of China. That's not to say that live streaming isn't a thing in the US and Europe It absolutely is.

but Western viewers are far less likely to buy a product from an influencer than their Chinese counterparts. Why has live shopping become so successful in China but failed to catch on in the west? Honestly? I Have no idea. Live shopping never seems to work in the US or Europe despite Tick-Tock Facebook and Amazon all having tried it in various forms. So Tick Tock has now set its sites on southeast Asia which is culturally more similar to China so they can hopefully have more success.

In 2022, they had 4.4 billion dollars of gross merchandise value in the region representing about four percent share of the total e-commerce Market This also represented a more than 300 growth rate from the previous year. While the growth has been impressive, they are almost certainly losing money as they've been subsidizing shipping costs. Tick Tock has no in-house Logistics Capability: They don't own any warehouses or employ any delivery drivers. They Outsource the entire process to third-party logistics companies which is very expensive.

The other two main competitors in the region Shopee and Alibaba owned Lazada have invested billions of dollars into their own Logistics capabilities. Because they don't have to hire third-party contractors, it's a lot cheaper for them to get a product to the consumer's door. Tick Tock says that they will invest billions of dollars into the region over the coming years. It remains to be seen whether Tick Tock will ever recreate the success its parent company achieved in China Alright guys, that wraps it up for this video.

what do you think about Tick Tock Let us know in the comments section below. as always, thank you so much for watching and we'll see you in the next one. Wall Street Millennial Signing out.