Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money

71% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

  • IPO watch
  • china tech
  • disruptive innovation

What’s on new CEO Liang Rubo’s agenda ahead of the ByteDance IPO?

China tech watchers got a shock when they woke up last week to news that ByteDance CEO Zhang Yiming had decided to step down.

Zhang was candid about the decision in a company blog post, writing that he was not the ideal manager type as he was more interested in solitary activities like reading, going online and daydreaming, rather than “listening to presentations, handling approvals and making decisions reactively”.

“Innovation and success are rooted in years of exploring and imagining what is possible. However, few people have real insight into the future, preferring to model on current and past achievements,” the founder wrote in a company blog post, citing American tech giants as role models.

Considering Zhang has overseen ByteDance’s TikTok and its Chinese sister app Douyin’s phenomenal growth, saying that he “lacks some of the skills that make an ideal manager” may come as a surprise.

“Innovation and success are rooted in years of exploring and imagining what is possible. However, few people have real insight into the future, preferring to model on current and past achievements” - ByteDance CEO Zhang Yiming


Yet with Beijing increasingly reining in its tech sector, and tensions with the US, the last couple of years have been eventful for ByteDance’s outgoing CEO. With ByteDance’s IPO on the horizon, there has been no let up.

Taking Zhang’s place at the top is co-founder and head of human resources Liang Rubo. According to the Financial Times, current and former ByteDance employees describe Liang as loyal to Zhang, if something of a puppet figure who would execute his boss’s orders.

With the transition between CEOs earmarked at six months, Rubo will need to get his head around some daunting issues, any one of which could be career defining.


A ByteDance IPO while appeasing Beijing

Rubo’s biggest challenge will be pushing through ByteDance’s IPO. Preparations are already underway for one of the year’s most eagerly awaited debuts, with ByteDance weighing up listing on either the US or the Hong Kong exchange in a debut that could top a $250bn valuation.

The departure of Zhang could help smooth a listing with Beijing. In April, the China Securities Journal — a state run publication — reported that ByteDance had started the IPO process in Hong Kong, although that story was deleted less than 24 hours later. Investors may be reminded of the scuppered Ant Group IPO last year.

Beijing has been at pains to rein in its high profile tech companies recently. Zhang’s departure follows the resignation of Pinduoduo [PDD] founder Colin Huang in March, the same month that Ant Group’s chief executive Simon Hu also stepped down.


Fall of the China Tech investment theme over the past month


What is spooking investors is that the authorities in China appear to have teeth, as they seek greater regulation on the country’s tech sector. ByteDance, along with 34 other tech companies, has been ordered to comply with anti-monopoly laws. Any breaches incur a severe punishment — Alibaba’s $2.8bn fine for breaching antitrust rules is a case in point.

All this has added up to a downturn in investor sentiment. The China Tech investment theme is down circa 8% over the past month (as of 24 May). However, David Balin, CitiGroup Wealth’s chief investment officer, reckons that, while there is risk, the “Chinese government does not intend to damage [its tech sector]”, telling CNBC’s “SquawkBox Asia” that the authority’s intention is to regulate it.

An acquaintance of the outgoing CEO told the Financial Times that “Yiming is not very good at government relations [in China]”. Rubo will need to do better.


Resetting US relationships

Washington and the Biden administration will be yet another test of Rubo’s diplomatic mettle. TikTok became the epicentre of the ongoing US-China trade spat when President Trump attempted to ban the app in the US or force a sale of its overseas operations to an American company. Oracle [ORCL] eventually emerged as a likely buyer, but the talks ended in limbo.

At the time, Zhang was between a rock and a hard place. Trying to appease the Trump White House’s demand that TikTok’s US operations be US-owned led to censure from Beijing. Since taking office, the Biden administration has said it was reviewing Trump’s attempt to ban TikTok on national security grounds.

ByteDance won’t be getting a free pass here. Under Biden, the White House has continued to take a tough line on China, marking another potential flashpoint for Rubo’s first year in charge.


Hitting ambitious e-commerce targets

ByteDance is reportedly eyeing up China’s trillion-dollar e-commerce market via its short-form social platforms. The plans are ambitious.

Last year, the company garnered $26bn in sales through e-commerce and is aiming to hit $185bn in 2022, according to a Bloomberg report. It helps that Douyin already has a huge audience of between 610 million and 620 million daily active users in March, which it hopes to increase to 680 million.

“Short video platforms have so much traffic that they can basically do any business,” Shawn Yang, managing director of Blue Lotus Capital Advisors, told Bloomberg.

ByteDance faces stiff competition in the form of Alibaba [BABA], JD.com [JD] and Pinduoduo, but the prize could be worth it. 


Valuation of China's e-commerce sales in 2019


China is the world’s biggest e-commerce market, generating $1.7trn in sales in 2019, up from $1.5trn in 2018, according to a study by JP Morgan.

Between 2019 and 2023, the market is set to expand at a compound annual growth rate of 11.2%. Growth drivers include a growing middle class and more people introduced to online shopping due to the pandemic.

Getting its e-commerce strategy right could bump up ByteDance’s already hefty pre-IPO valuation. If Rubo can manage this well, smooth over relationships at home and abroad, get the e-commerce strategy right, and manage a ByteDance IPO, then he will have a remarkable first year in charge.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Continue reading for FREE

Latest articles