Many rolled their eyes when they first heard of an app that lets millions of young people share 60-second video clips of themselves lip-syncing, dancing, or falling. It was only the next "thing." It would pass.
The eyerolls stopped when they heard how much money some TikTok users were making. According to Forbes, the top six earners on the platform have made an average of $3 million so far.
Not bad, considering the app was released in 2016. Also not bad, considering all of these earners, or "TikTokers," are under 30.
Some teens might forgo a summer job at McDonald's to do nothing but film themselves pranking their friends. You can be as young as 16 and make $450 per month with just half a million followers.
But even if you're not a social media influencer, you have bigger fish to fry: Should you invest in the upcoming TikTok IPO?
It might sound like the next Facebook, but there are plenty of questions swirling around this social media app.
We're going to answer them...
The TikTok IPO Is Coming
Just when investors were all hyped about the Snowflake Inc. (NYSE: SNOW) IPO as the "biggest software IPO of all time," TikTok comes along with an IPO announcement.
The Snowflake IPO crushed expectations at $120 per share and raised billions as the stock climbed to $229 today, a 90% pop. That company is currently at $63 billion market cap.
It made a good case for IPO investing.
As far as tech IPOs go, a TikTok IPO could make the Snowflake IPO look small. Investors estimate the company is worth $50 billion from its private funding rounds, according to Reuters.
According to Business Insider, TikTok could be "the largest IPO in recent years."
WARNING: 22 million shares of this stock trade hands every day - make sure you're nowhere near it. Click here...
It was preceded by an IPO drought amid the COVID-19 pandemic, coinciding with other big tech IPOs like JFrog Ltd. (NASDAQ: FROG) and Palantir. Days for stocks like these were signs the market could potentially be on a true path to correction.
Of course, we now know that wasn't completely true about the markets. There is much to be uncertain about right now.
Which brings us to the reason TikTok is going public...
Why a TikTok IPO Now?
Tensions between the United States and China have slowly risen over the last few years. One of the greatest blows to China came when the U.S. placed restrictions on American companies working with Chinese tech firms.
There was a fear of corporate espionage, Chinese companies stealing American intellectual property. Not only that, but there was a concern of what China could do with such deep access to American consumers' private information.
In the case of TikTok, for example, its parent company, ByteDance, has access to every American TikTok user's smartphone camera.
Americans are widely comfortable giving this sort of access to social media giants like Facebook, Inc. (NASDAQ: FB) and Twitter Inc. (NYSE: TWTR). But what they do with that access is somewhat veiled in mystery.
Giving the same access to a tech company from rival China is step further into unknown territory, as far as the White House is concerned. There is a fear that it would effectively funnel American consumer information directly to the Chinese government.
That's what initially prompted U.S. President Donald Trump to place a ban on TikTok if the Chinese ByteDance would remain the majority shareholder.
President Trump has set a deadline of Nov. 12, when TikTok would no longer operate in the United States. New downloads of the app were banned on Sunday, Sept. 20. Since then, there have been negotiations between American firms hoping to acquire the social media app.
The winning attempt to reconcile TikTok's American business was to partner with Oracle Corp. (NYSE: ORCL) and Walmart Inc. (NYSE: WMT). The companies now have 12.5% and 7.5% stakes, respectively, for a total of 20%. The deal was announced on Saturday, Sept. 19.
Oracle and Walmart had previously announced that the majority of the company would be American-owned, but this did not end up being true.
ByteDance also announced it would not be handing over TikTok's algorithms or technologies to Oracle. Oracle would instead act as a "code inspector" for TikTok's U.S. source code, to ensure nothing shady takes place.
TikTok's headquarters have been in the United States. But to designate it as a separate company from the Beijing-based ByteDance, the TikTok IPO announcement referred to company as "TikTok Global."
Though the deal does not meet the president's initial demands, it appears he has given the company the nod.
Now, ByteDance is trying to solidify its position in the U.S. market by doing a full U.S. spin-off of TikTok, taking it to the public markets. This will open the company to more scrutiny as it hopes to ease concern over transparency.
So TikTok is up for being transparent in compliance with U.S. standards... Are you up for investing in TikTok?
Should You Buy TikTok Stock After the IPO?
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IPO investing can be exciting, especially when a company like TikTok is about to hit the public market. But it can be risky business.
The run-up to an IPO has been known to artificially inflate the stock price. This has happened on numerous occasions.
Snowflake, again, is another example. The Snowflake stock started at $276 but took a dip down to $226 at the end of its next trading day - a loss of 22%.
JFrog lost 7% from its high of $69 - this was still a relatively large sophomore slump.
But if history can tell us anything, it's that these stocks can still fall even harder.
Lyft Inc. (NASDAQ: LYFT) is an often-used example her. It's fallen from $78 to $28 since its IPO. That's more than a 60% drop.
These companies - Snowflake, JFrog, and TikTok - all may have superior business models to Lyft. But it could still be some time before their stock prices reflect concrete financials more than investor hype.
TikTok could be promising financially. Beyond that, it is an exciting product with a lot of future upside.
But you shouldn't necessarily judge this stock like any other stock. It's important to consider how tense conditions have been between the United States and China. Tensions have only grown over the last couple years, which puts every day ahead of the TikTok IPO in question.
IPO investing is already risky. But when your whole investment decision hinges other geopolitical factors that in the blink of an eye could immediately cut off the company from its base, you might want to consider other options...
Three Stocks Even Better Than TikTok
Chief Investment Strategist Shah Gilani just held his first-ever stock-picking lightning round event - running through more than 50 stocks to tell you if they are stocks to buy or stocks to sell.
Dozens are overpriced and overhyped - you should ditch them ASAP.
But Shah says THESE three stocks are "screaming buys."
All three are trading at a discount... they're under-the-radar companies most people haven't even heard of... and they have massive tailwinds ready to send their share prices into the stratosphere.
To get the company names, tickers, and price targets for Shah's picks, go here now.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.