TikTok ban in USA and its revenue impact

TikTok, a product was developed and is owned by Chinese firm ByteDance has become the most influential video sharing platform in the recent times in United States Of America since they started their business operation in 2018 . But citing data security concerns , US officials has raised concerns and the president of USA Mr. Donald Trump has decided to ban Tiktok by September 15,2020 unless it is bought by any US based company. He also asserted that he is in favor of a 100 percent buyout and a substantial amount out of it should go to the treasury. There were many developments such as news about retail giant Walmart is teaming up with Microsoft to place a bid, likewise Oracle entered race to buy TikTok’s US operations. While it is interesting to see future developments with Tiktok, this write up primarily focuses on what would be the revenue impact to company due to this ban. In other way round, if the TikTok business in USA continues as is without ban, what would be the forecasted/projected revenues going to be. Data analysis was done using Python programming language to arrive graphs and pie charts.

This drastic decision of a ban by the US government can affect the China based firm in adverse manner since USA being the cash cow for TikTok and it has gained a large number of users and revenue from the US market since its beginning in 2018. There was around 11 million,27 million,40 million,91million and 100 million monthly active users in January 2018, February 2019, October 2019, June 2020 and August 2020 respectively in USA. This clearly shows a surge in the popularity of the application. On the other hand, when we have analyzed the number of users in different platforms i.e android and iOS, we could get the following result.

Fig1:- Graph showing download of TikTok in five countries on two mostly used platforms

From the above figure it is clear that Android is the mostly used platform for downloading TikTok in other countries except USA where nearly 50% population use IOS. As you can see, India is the country with maximum download of this app and USA is in second position based on this criteria. Overall, TikTok ranked fourth in terms of global downloads only after Facebook properties (Messenger, Facebook, and Whatsapp). These stats refer to the Google Play Store and iOS App Store.

Figure 2:- Graph showing total number of TikTok users in USA from 2018 to march,2020.

The above graph represents considerable growth in US TikTok users over the course of past few years, starting from a point just a little above 3.4 million. It may be seen that at end of 2018 the number reached around 12.4 million which is approximately four times the number of users at the starting time. So it clearly specifies that download and use of TikTok increased by a large amount within 2 years and the trend shows that the number might became larger in the upcoming years. The app became more popular during the course to the people of United States. TikTok is an app which is based around lip syncing, dancing, comedy skits, and other physical activities was naturally used by different age group of people with different level of interest which will be more clear from the next figure.

Figure 3:- Pie chart showing use of TikTok in USA by people of different age-groups.

From the above figure we can say that the app is being used by young generation and specially by teenagers. Figure shows that 32.51% of the total users in USA are teenagers i.e in the age group 10-19 and nearly 30% of the users belong to age group 20-29. So around 63% of the total users were young people. On the other side it may be seen that around 21% of the users in USA belong to age 40 and above. So TikTok is not only limited to kids and young people but also older generation has a tendency to use the app.

Figure 4:- Pie chart showing use of TikTok in USA by people of different sex.

Above figure chart clearly shows that female population is little more interested about that the app than males with a difference of around 18% than male users. But both males and females appreciated it in the same way.

Now a question arises what would have been the future of TikTok if it was not banned? If the same trend and tendency follows, how in future users would react to TikTok? For an assumption of this answer an analysis was performed to predict the number of users in the next few months. The result is based on an Seasonal AutoRegressive Integrated Moving Average (SARIMA) model with parameters (1,1,1)*(1,1,1,12). The result after integrating in the previous figure (figure 2) is as follows-

Figure 5:- Plot of actual and predicted users of USA TikTok users from 2018.

Here red line shows actual number of users and the cyan line shows the predicted number of users in USA from april-2020 to april-2021. The predicted numbers are as follows-

Apr-2020 22.280355,May-2020 24.081189, Jun-2020 22.381706,

Jul-2020: 23.604300,Aug-2020   23.759812,Sep-2020   26.246756,

Oct-2020   26.593325,Nov-2020   29.041328,Dec-2020   27.965931,

Jan-2021   31.307081,Feb-2021   31.455348,Mar-2021   33.770055,

Apr-2021   31.831144

For the accuracy of the model, Mean Sum of square of errors have been calculated. It is- 2.458620. Since MSE is much less it can be said that the results are much reliable. From the above figure, the likelihood increasing trend in the number of users of TikTok in USA is more so in future the number of users would likely be increased and this implies more revenue to TikTok So we can clearly say that this ban could affect the cat goodwill of the Chinese firm in the social market and also it would impose a high revenue burden to ByteDance.

Time Series Analysis of Revenue Data from TikTok. 

An analysis was performed using SARIMA model mentioned before to predict the revenue of TikTok until April 2021.The parameters are (1,1,1)*(1,1,1,12) . The plot of actual and predicted revenue has shown below-

Figure 5:- Plot of actual and predicted revenue of USA TikTok users from 2018.

TikTok has earned a substantial revenue from U.S.A. According to sources, from US the gain was around $36 million which was almost 20% of TikTok’s total revenue in 2019. Here in the graph the red line shows actual revenue from jan-2018 to dec-2019 and the cyan line shows the predicted revenue in USA from jan-2020 to April-2021. The predicted numbers are as follows-

Jan-2020   44.602212,Feb-2020    50.700251,Mar-2020    53.363497,Apr-2020    57.292384

May-2020  61.487338,Jun-2020    65.448782,Jul-2020    69.677131,Aug-2020    74.872799

Sep-2020   78.936190,Oct-2020   95.467707,Nov-2020   105.467745,Dec-2020  110.505640

Jan-2021  115.477160,Feb-2021 123.983131,Mar-2021  129.024369,Apr-2021   135.301677

For the accuracy of the model Mean Sum of square of errors have been calculated. It is- 2.398911.

PS: The above forecasting was done based on the pattern of data we have. There is an assumption in time series analysis that the trend of data should be same in future or the taste and habits of people should be same in future. Based on observed patterns and trend of the data, forecasting was done.

TikTok is a very popular and profitable app and it will be interesting to see who will secure the deal and how would the deal transpose USA-China trade relationship. On the other hand, Tiktok has sued the Trump administration over their executive orders banning transactions in the US with TikTok by calling it an election deploy. TikTok and parent company are seeking a permanent injunction to block Trump administration from enforcing the executive order. With new China’s export rules, the deal seems getting further complicated. Although this deal may give an economic benefit in the longer run to whoever who acquires, but I personally feel there will be possible harm to foreign investment and US-China long standing trade relations. 

 Sources:

 US will ban TikTok : https://abcnews.go.com/Politics/trump-tiktok-shut-us-sept-15-deal-made/story?id=72150177

Trump push to ban TikTok: https://www.businessinsider.com/donald-trump-tiktok-ban-us-china-explained-in-30-seconds-2020-8

US TikTok ban: https://www.theguardian.com/technology/2020/aug/06/us-senate-tiktok-ban

Why is the Trump administration banning TikTok: https://www.brookings.edu/blog/up-front/2020/08/07/why-is-the-trump-administration-banning-tiktok-and-wechat/#:~:text=The%20executive%20orders%20argue%20TikTok,on%20weapons%20or%20intelligence%20systems.

TikTok reveals global users growth: https://www.cnbc.com/2020/08/24/tiktok-reveals-us-global-user-growth-numbers-for-first-time.html

TikTok sues Trump over threatened ban: https://www.cnbc.com/2020/08/24/tiktok-sues-us-government-over-trump-ban.html

TikTok revenue statistics: https://www.google.com/search?q=tiktok+data+analysis&client=ubuntu&hs=JPo&channel=fs&sxsrf=ALeKk03yN-UD6zaCd3cpXrbrCGIv3U0nBQ:1598884697904&source=lnms&tbm=isch&sa=X&ved=2ahUKEwjf8tHT1cXrAhVPyjgGHePeCYEQ_AUoA3oECA4QBQ#imgrc=yCXtNq2dXTTUuM

Tiktok statistics based on platform: https://www.google.com/search?q=tiktok+data+analysis&client=ubuntu&hs=JPo&channel=fs&sxsrf=ALeKk03yN-UD6zaCd3cpXrbrCGIv3U0nBQ:1598884697904&source=lnms&tbm=isch&sa=X&ved=2ahUKEwjf8tHT1cXrAhVPyjgGHePeCYEQ_AUoA3oECA4QBQ#imgrc=dzRdJH5g1zeCRM

 TikTok users statistics from https://www.google.com/search?q=tiktok+data+number+of+users&tbm=isch&ved=2ahUKEwjc7IDW1cXrAhUu3XMBHR0eAScQ2-cCegQIABAA&oq=tiktok+data+number+of+users&gs_lcp=CgNpbWcQAzoECCMQJzoCCAA6BAgAEBhQ8oYPWLjHD2DO0A9oA3AAeACAAZ8FiAHfMZIBCjItMjEuMi4wLjGYAQCgAQGqAQtnd3Mtd2l6LWltZ8ABAQ&sclient=img&ei=XgtNX9zFNK66z7sPnbyEuAI&client=ubuntu&hs=JPo#imgrc=MKMHDII11sBiWM

TikTok usage by different age groups data from https://www.google.com/search?q=tiktok+users+of+different+age+groups+in+usa&tbm=isch&ved=2ahUKEwil3bSH18XrAhV82nMBHVsXADMQ2-cCegQIABAA&oq=tiktok+users&gs_lcp=CgNpbWcQARgBMgQIIxAnMgQIIxAnMgIIADICCAAyAggAMgIIADICCAAyAggAMgIIADICCAA6BAgAEEM6BggAEAoQGFD-EFiSM2CwRGgDcAB4AoAB8AyIAb06kgEJNS0xLjEuMi4ymAEAoAEBqgELZ3dzLXdpei1pbWfAAQE&sclient=img&ei=0gxNX6WsN_y0z7sP266AmAM&client=ubuntu&hs=JPo#imgrc=qrQaIErko7BYwM

Tiktok usage by different sex data from https://www.statista.com/statistics/1095201/tiktok-users-gender-usa/