What's the cheapest stock out there right now? I'd say it's ByteDance, the privately owned Chinese tech giant that owns TikTok. Recently, ByteDance increased its first-half revenue by about 35% to $73 billion. That puts it on par with Meta Platforms (the owner of Facebook), but ByteDance is growing even faster. To compare, Meta's revenue went up 25% to $75.5 billion in the same period.
Yet, Meta has a market capitalization of $1.4 trillion, while ByteDance's valuation on the secondary market is around $250 billion, according to CapLight. That's a huge gap. If ByteDance keeps up its growth rate in the second half, it should pull in around $150 billion in revenue for 2024. This means the company is trading at about 1.7 times this year's revenue—a multiple you'd typically see for a company that's not growing. On the other hand, Meta is trading at around 8.7 times its estimated 2024 revenue.
Sure, Meta's profit margins are higher than ByteDance's. In the first half, Meta had a 38% operating profit margin, while ByteDance's operating profit margin dropped to 25% from 30% a year earlier, mainly because of investments in areas like e-commerce. But even so, that doesn't fully explain the big difference in their valuations.
Some investors have already pointed out that the numbers don't add up. Mitchell Green, the founder of Lead Edge Capital, has been buying ByteDance stock, calling it "ridiculously cheap."
However, Green seems to be in the minority, and there's a good reason for that. TikTok is facing a significant threat in the U.S. due to a law passed in April that requires the company to cut ties with ByteDance or face a ban.
This has cast doubt on ByteDance's ability to go public, which is when investors could really cash in. The uncertainty over TikTok's future and when ByteDance will go public are probably the main reasons for its low valuation.
TikTok is trying to challenge the law in court, but there's no guarantee they'll win. Even a new presidential administration might not change the situation, although Donald Trump said over the summer that he's "for TikTok" because it keeps competition alive for Meta. For investors thinking about ByteDance, this isn't an easy decision.
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