Bytedance in India is profitable, but how?

Global behemoths operating in India run through a complex organisational structure and render services using several owned entities. As a result, they never offer a holistic financial performance with annual filings. Google Pay is a classic example.

G-Pay showed a profit of Rs 5.1 crore in FY19 while the reality is that it must have lost several hundred million USD in FY19 on the lines of Paytm and PhonePe. Paytm had posted a loss of Rs 2,615 crore whereas PhonePe’s losses piled up to Rs 1,907 crore in FY19.

Employing a similar strategy, Bytedance India and its related parties posted a profit of Rs 3.38 crore in FY19. It’s worth noting that the Indian entity offers services to Bytedance Singapore and it has nothing to do with TikTok, Helo and Vigo directly.

Helo is owned by Delaware-based Bytendance Inc. Vigo controlled by TikTok Singapore and TikTok is a wholly-owned subsidiary of TikTok Inc.

According to the annual financial report filed by Bytedance India, the company has made a revenue of Rs 43.62 crore in the financial year ending in March 2019. About 5% of the total revenue ~ Rs 2.16 crore ~ earned from the sales of advertising. Rest 95% came from service fees collected from TikTok Singapore during FY19.

Total expenses were just under Rs 41 crore, but the fact that a huge chunk of the expenditure was reimbursed by its honk kong and Singapore based parent companies is evident.

The company paid only Rs 61 lakhs in employee benefits, and the salaries for directors were received from the parent entities, as no director fees and reimbursements were processed through the Indian entity. Bytedance India shelled out Rs 13.5 crore on advertisements and promotions, Rs 1.09 crore on legal fees and another Rs 13.62 crore on contractual employees.

As per the balance sheet, the gross value of transactions incurred between Bytedance India and its related parties amounted to Rs 94.33 crore. TikTok Singapore has reimbursed around Rs 9.3 crore on account of employee salaries and rent payments. Another expense of contractual employees worth Rs 9 crore was reimbursed by Bytedance Hong Kong.

Bytedance India has received Rs 34.5 crore from issuing of shares to TikTok Singapore. It paid another Rs 4.6 crore to the local entity for rental expense in the last fiscal.

So, the number looks great for the company that has amassed over 130-140 million monthly active users with about 240 million overall user base in India. However, the company with three products in the local portfolio (TikTok, Vigo and Helo) has been spending multi-million USD every month.

It’s highly unlikely that TikTok, Helo and Vigo have been generating more cash than its expenses. For instance, Helo’s competitor SharChat had posted a loss of Rs 415 crore in FY19 with a zero revenue from actual operations.

Similar to Google Pay, Bytedance has used several entities to run operations in India. Hence, somehow, it managed to reflect profit. In reality, it would have lost several hundred million USD. But, we will never know the quantum of its actual losses as Singapore, the US and Hong Kong governments don’t allow the third party to access companies’ balance sheets.