By Alec Macfarlane
(The author is a Breakingviews columnist.)
HONG KONG, Dec 28 ( Breakingviews) - ByteDance would add some oomph to China's BAT. The fast-growing creator of news and video apps is already privately valued at $75 billion, putting it on par with web search outfit Baidu, whose public equity in early December was worth some $65 billion. A 2019 merger between the two will modify the constituent parts of the acronym shared with Alibaba and Tencent.
Competition for online advertising is cutthroat in China, however. About 10 companies, including Tencent and web portal Sina, share most of a pie estimated by iResearch to be some $73 billion. Pressure will only increase as China's economy cools. Marketing budgets are often among the first to be cut. Baidu is in particularly bad shape. Revenue growth is abating and efforts to diversify have been slow.
That makes a union of Baidu and ByteDance a tantalising prospect. Aside from the potential cost savings, Baidu would provide ByteDance with a stepping stone to business customers. The web group led by Robin Li also has some powerful artificial intelligence of its own to contribute. And it would give ByteDance, backed by Sequoia Capital, KKR and other investment firms, an easier path to capital markets, which have become increasingly difficult for new tech ventures to enter at the exuberant valuations they want.
For Li, owning a slug of the combined company would give him a stake in a bigger, more promising group. What's more, both ByteDance and Baidu are among the few sizeable Chinese technology enterprises not funded by either Alibaba or Tencent. Together, they would prove a more formidable force. The challenge will be for two strong, rival personalities to see eye to eye. Such bountiful opportunities, though, suggest a double-B deal is meant to be.
- This is a Breakingviews prediction for 2019. To see more of our predictions, click
- ByteDance, an operator of news and video apps, was in October in the process of raising at least $3 billion from investors including Japanese tech and telecom company SoftBank at a valuation of $75 billion.
- Jinri Toutiao, a provider of custom news feeds, has 120 million daily active users, while Douyin, also known as TikTok, which allows users to upload and share videos, has 150 million. Together, Douyin and TikTok have some 500 million monthly active users.
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