ByteDance's revenue growth and profit margin both declined in 2024. It faces internal concerns in advertising and external challenges from TikTok, while the large-scale model is costly. | Exclusive from 36Kr.

Text | Lan Jie (36Kr Future Consumption)

Editor | Yang Xuan

After years of rapid growth, ByteDance is encountering a severe challenge.

36Kr learned from an insider close to ByteDance that in the first three quarters of 2024, the company's revenue growth rate declined significantly. In addition, after its profit margin experienced a short-term increase through "slimming down and strengthening", it has once again entered a downward trend.

Behind the data, it reflects the three challenges that ByteDance is facing: The domestic advertising revenue engine is slowing down; The impact of geopolitics on TikTok's revenue is beginning to emerge; And the large-scale model industry is in the early stage of high investment, with no short-term returns in sight.

Among them, domestic advertising revenue has always been the foundation of ByteDance's revenue. However, according to LatePost, in the first three quarters, the year-on-year growth rate of ByteDance's single-quarter advertising in China dropped from about 40% to less than 17%, and the set goals were not achieved in the past two quarters.

Behind the slowdown in advertising is the significant slowdown in the growth rate of Douyin's e-commerce business, and the inability of the life service business to drive merchants' advertising investment to meet expectations. The sales growth rate of Douyin E-commerce has dropped from over 60% at the beginning of the year to less than 20% in September, while the advertising revenue driven by Douyin Life Service is still less than 5% of the total. In these two industries, Douyin Group is facing fierce competition from Taotian, Pinduoduo, JD.com, Meituan, Kuaishou and even Xiaohongshu.

36Kr learned that in order to cope with the continuous slowdown in the growth rate of advertising revenue, ByteDance has increased subsidies to merchants to stimulate their enthusiasm for advertising. Since this year, only Jumei Engine has invested more than 10 billion yuan in subsidies for merchants and users, and the total subsidy amount of ByteDance's entire platform exceeds 30 billion yuan. However, this still failed to prevent ByteDance's advertising revenue from failing to meet the revenue target for two consecutive quarters, while the corresponding advertising business costs have increased by 60% year-on-year.

Looking at the global market, the business prospects of TikTok have always been the key driver for boosting ByteDance's valuation. However, 36Kr learned that in the first three quarters of this year, TikTok's global revenue also fell short of expectations. Among them, the highly anticipated TikTok e-commerce business GMV has not met expectations for several consecutive months, and the live-streaming e-commerce model that is popular in China has not been able to be quickly replicated in European and American countries.

This is closely related to the severe geopolitical challenges faced by TikTok. At the end of April, the US President signed a law to ban TikTok on the pretext of national security, and TikTok may lose the US market in January 2025. TikTok has initiated a constitutional violation lawsuit against this law, but from the court debate situation, the "life and death" outcome of this product in the US is not optimistic. Although the ban has not been implemented, the impact of this uncertainty on the confidence of TikTok-related merchants and advertisers has already been reflected in TikTok's revenue.

Among the declining data, the more notable is the once again decline in the profit margin, which has interrupted the upward trend of the company's profit margin since 2022. The reasons behind this, in addition to increasing subsidies to merchants and users, more importantly, are the high investment in the Doubao large-scale model and related businesses.

At present, the large-scale model industry at home and abroad is in a fiercely competitive "burning money stage". Referring to the leading company OpenAI, according to foreign media reports, the company's total operating costs this year may reach 8.5 billion US dollars, or it may face a huge loss of up to 5 billion US dollars. Backed by ByteDance, the large investment of Doubao will inevitably drag down ByteDance's profit margin.

In order to quickly acquire users, Doubao voluntarily initiated a price war in the domestic large-scale model in May this year. In October, Doubao also entered the smart hardware field and launched its first AI smart body headphones, Ola Friend.

In the past three years, the main line of ByteDance's business adjustment has been "slimming down and strengthening", and businesses such as PICO, games, and Feishu have contracted to varying degrees. The large-scale model is a new business that ByteDance has rarely invested heavily in in the past three years. At the 2024 annual all-staff meeting, ByteDance CEO Liang Rubo also reflected that ByteDance's technical sensitivity is not as good as that of start-up companies. This means that ByteDance's investment in the large-scale model will be continuous and firm, and in the case of the slowdown in the growth rate of advertising revenue and the "uncertain future" of TikTok in the US, ByteDance's profit margin will continue to be under pressure in the short term.