China-based ByteDance, owner of the TikTok social media application, lost $75.6bn in market-value changes on a range of convertible securities last year, a report said.
These unrealised market losses on convertible securities, basically stocks whose share prices have dropped but have yet to be sold, helped push its net losses to $84.9bn.
Such enormous losses help explain why Bytedance in January said it was dissolving its corporate venturing unit.
ByteDance’s first investment in 2014 was to back venture capital firm Source Code Capital as a limited partner. It went on to build its investment activities quickly. Data from CVS TouZhong showed, as of 16 August 2021, ByteDance had made over RMB25bn ($3.51bn) in investments in more than 160 companies, covering the entertainment, enterprise services and gaming sectors.
The value of these investments had soared before local stockmarkets crashed in the second half of last year, especially for tech companies. Accounting regulations mean private assets are marked to public market comparisons so even the limited rebound this year will only affect Bytedance and others’ 2022 annual returns.
As analyst Jeffrey Funk said on the report: “ByteDance needs cash and it is targeting employees for that cash. Its huge losses also bolster my long-made argument that most privately held unicorns have huge losses.”
Bytedance is just one of the tech behemoths – an internet platform with more than 100 million users or more than RMB10bn (about $1.6bn) in revenue – unwinding or downgrading its corporate venture capital crossholdings in the country as local conditions became more tricky.
Data from research group ITjuzi published by the Financial Times showed startups’ fundraising haul in the first half of the year fell 38% with the number of deals down 19% compared with last year as active CVCs, such as Tencent, seemed to focus more on international deals, including stake purchases in gaming group Ubisoft.
In August, newswire Reuters reported Tencent intended to sell all or much of its $24bn stake in food delivery giant Meituan to appease Beijing and the company has lost its status as China’s most valuable company.
As the Financial Times noted earlier: “The Chinese government is forcing Chinese tech groups to retract the financial tentacles that tie them together to the detriment of consumers – and state power.”
