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Text / Wang Jing
Source: Alphabet
After suffering huge losses for two consecutive years, ByteDance is actively slowing down in exchange for operating profit from negative to positive.
According to reports, Byte had achieved an operating profit of US$684 million (about 4.87 billion yuan) in 2019. But in 2020 and 2021, Byte entered a new round of rapid expansion, and its financial performance turned from profit to loss.
In June last year, Byte disclosed the company’s financial data for the first time at the “CEO face-to-face” staff meeting: revenue in 2020 reached 236.6 billion yuan, a year-on-year increase of 111%; operating loss was 14.7 billion yuan, a year-on-year decrease of 400%.
In another document sent to employees in August this year, Byte disclosed that its revenue in 2021 will reach $61.7 billion (about 439.1 billion yuan), a year-on-year growth rate of 86%.
During the same reporting period, Byte’s various costs and expenses expanded rapidly, of which the cost of sales increased by 79%, and the sub-items such as R&D and marketing expenses also reached tens of billions of dollars. Since the growth rate of cost and revenue is basically the same, and the increase in expenses is added, Byte’s operating loss in 2021 will reach US$7.15 billion (about 50.9 billion yuan), an increase of nearly 2.5 times year-on-year.
However, entering 2022, thanks to various cost control measures, the profitability of Byte has improved significantly. In the first quarter of this year, the year-on-year growth rate of Byte’s revenue further shrank to 54%, but the operating profit turned from losses to profits, driving the net loss to narrow by nearly 84%.
From a financial point of view, byte is not bad for money and has the ability to self-hematopoietic, so it is not meaningful to achieve operating profit in a certain quarter.
At present, most of Byte’s revenue comes from advertising, a business model centered on traffic distribution, which usually has a high gross profit margin and brings strong operating cash flow. In 2021, Byte’s gross profit margin is about 56%; as of the end of the year, Byte holds about $34.1 billion in cash reserves.
However, for Liang Rubo, who succeeded Zhang Yiming as the No. 1 position, showing the willingness and ability to lead the company out of the quagmire of losses in a timely manner still has multiple values.
In November last year, Liang Rubo officially took over as CEO of ByteDance, and immediately started a revolution. One of the most eye-catching measures is to set up six major business divisions, and the heads of each section report directly to Liang Rubo; and put the old businesses such as Toutiao and Xigua Video under Douyin. This adjustment is aimed at reducing the structure level and improving management efficiency and execution; it is matched with the shrinking of the scale of personnel in each line.
In the ensuing layoffs, many departments of Byte have suffered downsizing, and many employees have been forced to “graduate” or transfer jobs, such as the real estate trading platform Xingfuli, the talent development center under the HR department, etc., which have made a lot of contributions. The strategic investment department was even abolished as a whole.
In fact, before Liang Rubo stood at the C position, Byte has repeatedly resorted to layoffs. In the second half of 2021, vigorous education, the Ohayoo casual game team, and the local commercialization team are all shrinking sharply. Among them, the education sector is the hardest hit area, and the scale of layoffs is rumored to be as high as thousands.
However, for any company, drastic reforms will inevitably bring about resource reorganization and conflict of interest. Some middle and senior positions will be moved, and the mentality and morale of old employees will also be affected; managers want to suppress their positions and stabilize the military. , it is necessary to show the positive benefits of reform as soon as possible. Leading a company from losing money to making money is one of the most effective ways to convince people.
In the first quarter of this year, Byte has turned losses into profits at the operational level despite a further reduction in revenue growth. This report card, which is mainly based on “savings”, can be regarded as Liang Rubo’s outstanding performance after taking over as the head, and it also adds persuasive force to his reform plan.
On the other hand, despite repeated denials of listing plans, Byte will need to take this critical step sooner or later. For the capital market looking forward to the Byte IPO, this transcript is a timely reassurance, which will help Byte to stop falling and recover, repair the valuation, and pave the way for the future landing in the capital market.
A
As Zhang Yiming’s college roommate and entrepreneurial partner, Liang Rubo has deep qualifications within Byte, and has successively taken charge of several core departments, far beyond what the various princes and professional managers who joined later can match. In addition, Zhang Yiming personally handed over the authority to him. From the perspective of the company’s middle and upper management structure, Liang Rubo does not need to prove anything to anyone.
However, the experience of fighting the world together with Zhang Yiming is not enough to build the psychological foundation for Liang Rubo’s successor.
Since its development, Byte has become a giant company with tens of thousands of employees and the majority of post-90s generation. Most people cannot be familiar with Liang Rubo. Before showing real results, Liang Rubo will inevitably be more strictly observed and scrutinized by employees.
What’s more, Zhang Yiming’s expectation for Liang Rubo is “reform” rather than “success”.
Zhang Yiming (left) and Liang Rubo (right)At the Byte 9th Anniversary Event in March 2021, Zhang Yiming delivered a speech titled “Doing Extraordinary Things with a Normal Mind”, clearly stating that “this year, I hope that the company’s mentality can slow down to a certain extent.” More than two months later, the byte official announced that Liang Rubo would replace Zhang Yiming as CEO within the year, and in fact handed over the task of slowing down to Liang Rubo.
One of the subtexts of slowing down is that companies may no longer need as many people, and no longer need to be involved in too many segments at the same time.
All Zhang Yiming can do is to endorse Liang Rubo and his title; if the latter wants to implement the reform plan, he must use his performance to persuade everyone to move forward along the path he envisioned.
In the past ten years, Byte has become accustomed to the hurricane of Zhang Yiming’s era, and it is difficult to suddenly slow down with a command from the top. The total number of employees of Byte in 2021 exceeded 110,000; the growth rate of revenue fell by 25 percentage points, but the operating loss more than doubled.
As early as 2020, when he was the No. 1 Personnel Person of Bytes, Liang Rubo started a human efficiency inventory, trying to eliminate unnecessary personnel. But in the following two years, the total number of Byte employees did not drop but increased, and once exceeded 100,000.
This is of course related to Byte’s attempts to open up new businesses in education, games, music and enterprise-level markets; but one of the deep-seated reasons is that Byte likes to reserve talents at high prices during business expansion, and middle and high-level managers also tend to increase manpower. Solve business problems; coupled with the APP factory model, new businesses of various sizes emerge in an endless stream, which will naturally lead to the continuous expansion of the team size.
After Liang Rubo officially took office as CEO in November last year, Byte has made substantial progress in slowing down. His main idea is to put profit first, which is reflected in the so-called “fat and thin” at the business level.
The first is layoffs. From the end of 2021 to the first half of 2022, Byte’s multiple business lines have shrunk the team size, and even been cancelled as a whole; this is rare in Byte, which is accustomed to excess talent reserves. At the same time, some projects with poor development prospects have been cut back or abandoned altogether.
For example, after the implementation of the “double reduction” policy for off-campus training, the byte education sector vigorously launched a large-scale layoff involving thousands of people, and the business focus turned to education hardware; however, due to the dismal sales of smart lights, the size of the relevant team rapidly shrank from thousands of people As of June of this year, there were less than 100 people.
There are also some businesses that are also facing the fate of being abandoned due to overlapping with other sectors. In September of this year, several media reported that the operation of the independent e-commerce app “Douyin Box” of Bytes was about to be suspended, and employees would be returned to Douyin e-commerce and other teams by living water. Byte then denied the rumor.
The new measures under Liang Rubo’s rule may not win the heartfelt approval of everyone at Byte. After all, thousands of employees—many of them fresh graduates—have lost their jobs; and business lines have been shut down and turned around, forcing many older employees to find another way out.
The remaining employees have also changed their expectations for the company’s development, which are directly reflected in the options. In April this year, Byte launched an annual option redemption plan, where employees can convert year-end bonuses into options. However, a number of Byte employees told the media that many people around them did not participate in the option redemption.
It is normal for employees to be hesitant until the Liang’s reform has yet to see results. In this context, it is not surprising that ByteDance released the first-quarter turnaround to employees in August. It helps to explain to Byte employees the necessity and effectiveness of layoffs and business contraction from a financial perspective, and at the same time provides a performance endorsement for the new head, Liang Rubo, to continue implementing the next reform plan.
B
Compared with Zhang Yiming’s “great miracles”, Liang Rubo seems to prefer “four ounces” and pay more attention to the input-output ratio (ROI) of each business.
At the employee interview at the end of August this year, Liang Rubo said that “many businesses have not met expectations in the past year”, and will increase investment in key projects and reduce investment in non-core projects.
Byte’s previous requirement for the business is that if the ROI is greater than 1, it can continue to invest. However, in Liang Rubo’s view, some projects can be measured according to higher ROI standards in the future to judge whether it is worth investing in.
Liang Rubo also warned that although there is no large-scale layoff plan for the time being, “adding people may not solve the problem, but will make the problem worse.” Earlier, Byte had significantly reduced its recruitment plan for 2022-23, and Liang Rubo also wrote “de-fat and thin” into his OKR.
The shift from layoffs to the pursuit of higher ROI heralds a change in the focus of Liang’s reforms.
Taking ROI as a key indicator means that some water testing projects may be abandoned once they fail to achieve results in the short term. For example, in the field of cross-border e-commerce, Byte launched Dmonstudio and Fanno successively at the end of last year; but in February this year, Dmonstudio officially announced the suspension of operation, and three months later, Fanno also reported that it was about to shut down.
The more far-reaching impact of ROI orientation is that Byte has also begun to pursue small and large-scale choices in the choice of strategic direction, with less resources and investment in exchange for greater returns.
For example, local life has been coveted by Byte for a long time, and Douyin is the main attacker. It will officially enter the game in July 2020, and will launch functions such as ticket purchase, hotel reservation, catering group purchase, etc., and inject a large amount of traffic; at the same time, life will be established at the end of 2021 The first-level service department has started internal testing of food delivery services, which is likely to face off against Meituan.
However, limited by factors such as ground push, operation, and distribution capabilities, the development of Douyin’s local life has not been smooth. According to multiple media reports, Douyin once set a target of 20 billion yuan in GMV for this business in 2021, but only 10 billion yuan was completed by the end of November last year. In addition, the Douyin food delivery service has not yet officially landed.
In August this year, Douyin announced a partnership with Ele.me. The following month, Douyin launched an open platform, which will use Douyin applet as the main container to access partners in the fields of life services, leisure and entertainment; at the press conference, Ele.me was repeatedly mentioned as a cooperation model.
Douyin took a step back and surrendered a portion of the local life cake to Ele.me, which can continue to obtain lucrative traffic fees without investing a lot of money and resources. Compared with starting from scratch in person, this business paradigm of setting up the stage by yourself and paying others to sing the opera will help boost the ROI of the local life sector of Bytes.
But this kind of “four ounces” is not without its shortcomings.
In the era of Zhang Yiming, although Byte’s “APP factory” caused a lot of resource abuse and even waste, it also ran out of ace products such as Douyin, and finally established Byte’s status today.
Under Liang Rubo’s rule, Byte has higher requirements for ROI, and selling traffic and exporting its own technical capabilities has become a new customary path. This has the potential to inhibit innovation across the organization, which in turn affects investor perceptions and expectations. If according to the standard of ROI much greater than 1, Douyin, which did not improve for a few months, is likely to be disbanded in the embryonic stage.
The contradiction between certainty and growth, ROI and imagination is the challenge for Liang Rubo to lead the byte forward. Byte can use quarterly earnings to prove the effectiveness of Liang’s reform; but in terms of meeting capital market expectations, a fairly good financial report is far from enough.
C
At the employee face-to-face meeting in August this year, the new CFO Micro Motion responded to the rumors about Byte’s listing, claiming that “there is no specific listing plan and no timetable.” But both externally and internally, Byte needs to use an IPO to explain to investors and employees who have been with them for many years.
According to public information, Byte’s investor list includes Shunwei Capital, SIG Haina Asia, DST, Sequoia Capital, Tiger Fund, SoftBank China, Yunfeng Fund and other well-known domestic and foreign investment institutions, with a total financing amount of more than 5 billion US dollars . The return period of Internet venture capital is usually 5-8 years, and Byte has been established for 10 years and has reached the listing node.
The employees have also been waiting for a long time. Like most Internet companies, Byte’s salary package is divided into cash and option parts; Byte also opened a channel for year-end bonus conversion options in 2019, and many old employees participated in it. If the listing is far away, employees will suffer a lot of losses.
In the past two or three years, there have been frequent reports of the listing of bytes from the outside world. Bytes is also making some preparations. For example, in April this year, Gao Motion, a law firm background, was hired as CFO, and the name change from Bytes to Douyin was started.
But despite the constant wind, the Byte IPO has yet to land its boots. There are objective factors such as the sluggish global capital market and the unpopularity of Chinese concept stocks; and the slowdown in its own growth rate is also the reason why Byte has been reluctant to pull the trigger.
Since the second half of 2020, Byte has gradually evolved from a growth company to a mature company. The core Douyin is showing fatigue. DAU (daily active users) has been hovering at more than 600 million for a long time since it exceeded 600 million in June 2020. In the new business, vigorous education, which was once highly anticipated, suffered from the “group destruction” of the track. The game business performed mediocrely under the attack of Tencent and major game companies, and the metaverse with PICO as the entry point is still in the exploration period. Today, Byte’s revenue pillar is still advertising and traffic fees on platforms such as Douyin, while revenue growth has dropped from triple-digit percentages to double-digit percentages.
The hidden danger of Byte’s over-reliance on old businesses has been reflected in the capital market’s eyes. Bloomberg said in a July report that Byte’s valuation fell below $300 billion, down 25 percent from last year.
Faced with an unfavorable situation, ByteDance is trying to reshape the internal and external image of high-growth startups. It updated the corporate values of “Byte Fan” at the end of June this year, and raised “Always Entrepreneurship” from the 5th place to the 1st place.
However, rewriting the thinking background and external image of a giant company cannot be solved by a top-down document. It is difficult for tens of thousands of byte people to regain the fighting passion of the year, and it is impossible to rewrite the inertia of thinking inside and outside the company.
Internally, Byte can still motivate employees with economic returns by repurchasing shares and lowering option prices; but externally, before major changes occur on the business side, it is difficult for Byte to convince the capital market to continue to regard itself as a startup company. . It may need to face up to the fact that it is already a big company and embrace the valuation models of established companies.
In the new valuation model, the company’s growth will be close to the industry average, and the difference in valuation is mainly reflected in the level of profitability. Many domestic and foreign companies planning to go public suddenly turned losses into profits in a quarter or two before their IPOs; this kind of financial management “skills” wandering in the gray area of regulation reflects a tacit consensus between companies and investors. Byte’s profitability and development prospects are far stronger than most companies, but at the critical moment of listing, Liang Rubo may not be exempt.
In the periodic trough of Internet stocks, people pay more attention to the profitability of giants and the sense of security that comes from it. From this point of view, the turnaround in the first quarter of this year just made up the important puzzle of the byte listing story.
But just like Zuckerberg’s Meta indulging in tinkering with cash cow products and ignoring the epoch-making opportunity of short video, Byte may also lose some forward-looking opportunities after turning to the pursuit of profit and ROI. In the new soil under Liang Rubo’s rule, whether Byte can continue to cultivate super products like Douyin will be a new challenge for it after turning losses into profits.
References:
Burning Dimension, “Byte Hits the “Border””
Leifeng.com, “War of Thousand Lights: The ‘Blood Case’ Caused by Bytes’ Vigorously Studying Lamps”
Tech Planet, “The Myth of Internet Making Wealth Destroyed: The “Big Pie” of Options Is Not Famous, and Employees Are Worrying to Cash Out
LatePost, “Bytes All Members Meeting: No Listing Plan, Strictly Examining Values, Feishu Is a Big Opportunity”
Blue Ocean Yiguan, “Byte to shut down Fanno, killed by low price? The boss resigned, and the seller’s orders fell sharply”
Alphabet list, “The Douyin Takeaway Curve Resurrection: Can Spontaneous Live Takeout Save the Catering Industry? 》
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