ByteDance faces three significant challenges. Domestic advertising revenue growth has slowed down; geopolitical factors are starting to impact TikTok's revenue; and the large model industry is in a high-investment phase with no short-term returns in sight.

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In the first three quarters, ByteDance's revenue growth and profit margins both declined!

Recently, 36Kr learned from insiders close to ByteDance that the company's revenue growth in the first three quarters of 2024 has declined significantly, and its profit margins have also declined again.

ByteDance is currently facing three significant challenges: domestic advertising revenue growth has slowed down; geopolitical factors are starting to impact TikTok's revenue; and the large model industry is in a high-investment phase with no short-term returns in sight.

Domestic advertising revenue has always been the primary source of ByteDance's income. In 2020, ByteDance's actual revenue reached $34.3 billion (approximately RMB 236.6 billion), with advertising revenue accounting for 77% of that. Advertisers spent over RMB 100 million per day on exposure opportunities on platforms like Douyin and Toutiao.

Earlier, Beijing News' Shell Finance reported that ByteDance's revenue for 2021 totaled approximately $58 billion, equivalent to RMB 367.8 billion, with approximately RMB 250 billion coming from advertising. However, according to 36Kr, ByteDance's advertising revenue growth in China decelerated significantly in the first three quarters of 2024, with quarterly growth rates falling from around 40% to less than 17%, failing to meet targets in the past two quarters.

01.

E-commerce Business Growth Slows Down

In fact, this is not the first time ByteDance's advertising revenue growth has slowed down.

According to earlier reports by 36Kr, ByteDance achieved approximately RMB 115 billion in advertising revenue in the first half of 2021, with double-digit growth, close to meeting its original target. However, growth decelerated significantly in the third quarter of 2021. In some months of the second half of 2021, ByteDance's advertising revenue growth was negligible, close to zero, marking the first time in its nine-year history. Notably, due to various factors, advertising revenue growth among Chinese internet companies was generally slow in the third quarter.

Part of the reason for the decline in advertising growth this year is the significant slowdown in Douyin's e-commerce business. In July, 36Kr reported that Douyin's e-commerce GMV for the first half of the year did not meet preset targets, reaching approximately RMB 1.4 trillion. An insider revealed that Douyin's target for the first half of the year was RMB 1.5 trillion.

In 2023, Douyin's monthly GMV growth rate remained above 50%. However, in March of this year, Douyin experienced its first decline in year-on-year growth, falling below 40%. After the second quarter, growth further decelerated to below 30%.

According to a report by Goldman Sachs, during the entire 618 promotion period, Douyin's growth rate exceeded 20%. While this growth rate remained leading compared to other e-commerce platforms, it paled in comparison to Douyin's own growth in 2023.

In recent years, various industries have fallen into a price war, competing to offer the lowest prices. For e-commerce platforms, low prices have become a core strategy because they drive user traffic, which in turn leads to increased orders, GMV, and profits. Once this logic is broken, platforms must quickly adapt.

Insiders close to Douyin said that while the company was aware that low prices would impact GMV, the rapid decline in GMV growth in the first half of this year was unexpected. After the 618 promotion ended, Taobao and Douyin both announced plans to de-emphasize "absolute low prices." Douyin adjusted its business priorities, deciding not to prioritize price competitiveness and instead focus on GMV growth in the second half of the year.

02.

Large Model Profits Remain Elusive

At the end of last year, ByteDance scaled back its gaming business and established a new AI department, Flow, to fully pursue AI strategic initiatives. According to related job postings, Flow is ByteDance's AI innovation team, which has launched two products, Doubao and Cici, in China and overseas, respectively.

A product team member from Doubao told iFeng Tech that ByteDance's AI business (primarily the Flow department) maintained a high level of activity in Q1 2024. In May, ByteDance officially launched the Doubao large model and proactively engaged in a price war to quickly acquire users, reducing the API call price to 0.0008 yuan per thousand tokens, 99.3% cheaper than the industry average.

It is worth mentioning that there were rumors that ByteDance's large model training was compromised by an intern who injected malicious code, rendering the training results unreliable and potentially causing losses exceeding USD 10 million. In response, ByteDance issued a statement denying these claims, stating that the intern maliciously interfered with the model training tasks of the commercialization technology team but did not affect commercialized projects or online businesses, including ByteDance's large models. The rumored loss of over USD 10 million involving over 8,000 GPUs was greatly exaggerated.

Large models have undoubtedly been a hot topic in the internet industry this year. Influenced by ChatGPT, the domestic large model industry experienced rapid growth in 2023, leading to a heated competition among various players. However, both domestic and international large model industries are in a highly competitive and capital-intensive "burning money" phase.

According to leading company OpenAI, they do not expect to become profitable until 2029. Therefore, ByteDance still has a long way to go before achieving profitability in the large model field.

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