Will TikTok’s Rise Impact Facebook Stock?

Facebook (NASDAQ:FB) stock is up 38% year-to-date, but Facebook may be looking over its shoulder a little more lately, as it’s being challenged by TikTok, a short video app which is making waves among younger audiences.

FB Stock: Will TikTok's Rise Impact Facebook Stock?

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TikTok may be the biggest app you have never heard of. This new app belongs to Bytedance, a Chinese startup valued at $75 billion last year.

According to Sensor Tower, TikTok has been downloaded over 1 billion times, with 663 million downloads in 2018. And in October 2018, TikTok was downloaded more often than Facebook and Instagram. 

Venture capitalist Hans Tung notes that TikTok is “one of the few apps that has enjoyed wild popularity both inside and outside of China.” It boasts 26.5 million monthly active users in the United States, with 60% of them between the ages of 16 and 24. Worldwide, TikTok and its Chinese sister app, Douyin, claimed 500 million monthly active users in June 2018.

FB Stock Faces a New Rival … Again

Facebook took notice, and responded by launching Lasso, its own short video app, in November 2018. 

Now, if you’ve followed Facebook stock for more than two years, this story may sound familiar. This isn’t the first time a rival app is challenging Facebook and winning over Generation Z. I discussed the same thing happening with Snap (NYSE:SNAP) in 2017. Facebook responded by copying some of Snap’s features.

Facebook (the app) still has trouble with young people. However, this isn’t much of a problem for FB stock. Facebook also owns Instagram, which, according to a survey from Piper Jaffray, overtook Snap last year as the social network of choice for teenagers. Instagram claimed 1 billion monthly active users in June 2018, up from 800 million monthly active users in September 2017.

Could TikTok overtake Facebook’s family of apps? How will the rapid rise of this new app impact FB stock?

TikTok’s Background

 Zhang Yiming, a software engineer, founded Bytedance in Beijing in 2012. TikTok is not this company’s first app; it has also released Jinri Toutiao (Today’s Headlines), a wildly popular AI-powered news aggregator which boasts 200 million daily active users.

Bytedance has catapulted Zhang onto Forbes billionaires list, where he currently ranks No. 70 with a net worth of $16.2 billion.

TikTok was launched in China in September 2016 as Douyin. It began operating outside China a year laterAlthough TikTok and Douyin are very similar, the two apps are not exactly the same. Douyin is intended for use in China, while TikTok is the international version of the app.

TikTok’s Global Expansion

Bytedance bought musical.ly, an app for lip-syncing music videos, in November 2017, merging it with TikTok in August 2018.

Zhang made international expansion a priority last year, and said he wanted to have 50% of TikTok’s users outside of China by 2021. TikTok told advertisers in January that it had 17 million monthly active users in Europe. In India, TikTok claimed 52 million monthly active users  as of January. Compare that to Facebook’s Instagram, which has 75 million monthly active users in the country.

However, like Facebook, TikTok has run into some controversies around issues such as user privacy and obscenity. Indonesia banned TikTok in July, citing concerns around “pornography, inappropriate content and blasphemy.” However, the Indonesian government lifted the ban after TikTok agreed to delete such content.

Bangladesh banned Tik Tok in February, citing similar concerns. The Indian state of Tamil Nadu recently banned the app and TikTok is now facing a ban in India. Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Apple (NASDAQ:AAPL) have removed TikTok from their app stores in India.

And in February, the U.S. Federal Trade Commission hit TikTok with a $5.7 million fine for illegally collecting data on children.

Will TikTok Impact Facebook Stock?

If TikTok succeeds in reducing the time spent on Facebook’s platforms, Facebook stock would be negatively impacted. However, one more thing stands in TikTok’s way: its low engagement rate. An app’s engagement rate measures how often the app is used. As Apptopia explains:

“100% Engagement rate means users open the app every day while 50% means every other day.”

Apptopia’s chart shows that TikTok has a much lower engagement rate than Facebook or Instagram. Facebook and Instagram’s engagement rates are close to 100%, meaning the average user opens these apps almost every day. TikTok’s engagement rate is much lower, and suggests that the average user opens the app only two days per week.

TikTok will also have to find a way to make money; according to an article from Social Media Today: “Vine seemingly attracted a similar audience to TikTok, but was unable to monetize effectively.”

TikTok will have to clear these hurdles before it can mount a serious challenge to Facebook stock.

As of writing, Lucas Hahn did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2019/04/will-tiktoks-rise-impact-facebook-stock/.

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