Vol. 4, No. 6 — Tick-tock for TikTok
Banning a Chinese social media app; Rents and inflation will fall; The market is overvalued but keeps going up; Value in digital signature software
Welcome to 𝑉𝑎𝑙𝑢𝑎𝑏𝑙, a twice-monthly newsletter with expert financial analysis in a straightforward style. 𝑉𝑎𝑙𝑢𝑎𝑏𝑙 helps professional investors make sense of markets and find undervalued stocks.
New here? Subscribe now. Or check out the investment idea track record. Already a subscriber? Explore all of 𝑉𝑎𝑙𝑢𝑎𝑏𝑙’s essays and investment ideas.
I have started a new newsletter. In it, I will share my analysis of one undervalued high-quality stock each month—a 15-minute read on the best investment I found. Each pitch will include the company’s background, investment thesis, catalysts, valuation, and risks.
Subscribe below.
Read time: 38 minutes
In this issue
Quote | Peter Thiel
Cartoon | DocuSign new starts
Finance | Tick-tock for TikTok
Economics | Gimme shelter
Markets | Overexcited traders
Investment idea
Quote | Peter Thiel
“We wanted flying cars, instead we got 140 characters.”
Cartoon | DocuSign new starts
Finance | Banning a Chinese social media app
Tick-tock for TikTok
American lawmakers have threatened to ban TikTok unless it’s sold. Uncle Sam has a giant stick, so will likely get what he wants
TikTok is the app that keeps its users up way past their bedtimes. Doom-scrolling through short videos is addictive. That’s how the app has gone from 85m users to 1.6bn in just six years. But politicians have started to lose sleep because of TikTok, too. They’re worried the Chinese state could use it for propaganda. To prevent this, they want to ban the app unless it’s sold to a non-Chinese owner or goes public. So, what would a ban do to TikTok’s value? By 𝑉𝑎𝑙𝑢𝑎𝑏𝑙’s estimates, it would knock about $25bn—or 67%—off TikTok’s value. That’s a giant stick.
On the one hand, the ban doesn’t make sense because lawmakers’ fears of TikTok are overblown. While the app sucks up users’ data, there is no evidence it takes more than it says. If Chinese spies want to learn about Americans, there are plenty of other ways to get more information than they could from TikTok.
TikTok has created more competition in the social media industry, a market ruled by a few behemoths. A ban would be a massive handout to Meta, Google, Snapchat, and X, the app formerly known as Twitter. Advertisers want American eyeballs, and they’re willing to pay for them. 𝑉𝑎𝑙𝑢𝑎𝑏𝑙 estimates that while TikTok brings in about $9 per user per year, Americans were worth $37 each. If they can’t get to them through TikTok, they’ll pay that money to whoever can get them. In this case, it’s the existing social media giants. But Uncle Sam isn’t only worried about data going from America to China; he’s worried about the media that’s coming back.
On the other hand, a crackdown on foreign media is fair enough. TikTok has become a broad media platform. At last count, 192m Americans—58% of the population—used the app regularly. And they’re not only using it for entertainment. A third of young Americans see TikTok as a news source. As such, it’s a concern that the algorithm is shady. It’s doubly concerning that the Chinese state sees the media as a propaganda tool. In fact, most countries ban foreign ownership of their media. Yet, your editor suspects the American government is using the carrot and the stick to get what it wants. They realise the power they wield.
America is using China’s old tricks against them. Do what we want and you’ll get access to a vast market. But if you disobey us, you're out the door. In the American social media case, the market is big, rich, and worth a lot to TikTok. According to 𝑉𝑎𝑙𝑢𝑎𝑏𝑙’s model, TikTok is worth about $37.5bn in its current incarnation. But if the Yanks ban it, that value falls to about $12.5bn.
Keep in mind that these numbers are likely inaccurate. There is little to no public financial data on TikTok. Even so, the stakes are high. If TikTok isn’t a communist party mouthpiece, then they’d likely choose to go public instead of lose $25bn. But if it is, then Uncle Sam will have protected many mushy and malleable American minds from foreign massaging. Either way, it’s a win-win for America and a tick-tock for TikTok. ■
Economics | Rent and inflation
Gimme shelter
Renters will soon have more houses to choose from. This will pull inflation down
It's been a tough few years for American renters. The rising cost of living has given their wallets a migraine. Rents have risen faster than wages as there haven't been enough houses. But some much-needed pain relief is around the corner. A considerable number of new homes are on the way. Yet there won't be enough new households to fill them all. As a result, vacancy rates will rise, and rents will fall, pulling inflation down.