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What Is TikTok And Why Is It In The News 24/7?

Image via NBC News

In the early 2010s a short-form video sharing app called Vine gained a cult-like following. It was so popular it became the top free app on the iOS App Store and had 200 million active users. Twitter bought Vine before its public launch in 2012 for a reported $30 million, only to shut down the app four years later in 2016.

Why does this matter? Because TikTok, which is essentially the same app, is now taking the world by storm. Coupled with its meteoric rise in popularity is plenty of drama.

So what exactly is TikTok? TikTok is a video sharing app "for creating and sharing short lip-sync, comedy, and talent videos." TikTok allows users to create short music and lip-sync videos between 3 and 15 seconds and short looping videos between 3 and 60 seconds. The app just surpassed 1.5 billion downloads globally, with just over 123 million downloads in the U.S. alone. TikTok has more than 614 million downloads this year, surpassing both Instagram and Facebook.

TikTok even recently purchased office space in Mountain View, California that was previously occupied by Facebook's very own WhatsApp. TikTok has poached more than two dozen Facebook employees since 2018, as well as employees from Snap, Hulu, YouTube, Apple and Amazon.

So why is there so much concern lately over TikTok? The company was launched in the U.S. by ByteDance, a Beijing-based company following its acquisition of Music.ly. The app has received criticism for privacy, national security issues and censorship. A simple Google search for "Is TikTok safe?" yields articles from virtually every media outlet.

U.S. Senators Charles Schumer and Tom Cotton asked Joseph Maguire, the acting director of national intelligence, if the popular video sharing app TikTok could pose a "national security risk" to the U.S. The letter from the Senators read "Security experts have voiced concerns that China’s vague patchwork of intelligence, national security, and cybersecurity laws compel Chinese companies to support and cooperate with intelligence work controlled by the Chinese Communist Party."

The Committee on Foreign Investment in the United States (CFIUS), which reviews acquisitions of U.S. companies by foreign acquirers, is reviewing ByteDance's acquisition of Musical.ly. U.S. Senator Marsha Blackburn even wrote a letter to TikTok CEO Alex Zhu, calling the company "China's best detective."

Following ByteDance's latest funding round, ironically from Softbank, the company is reportedly sitting on a valuation of $75 billion, making it the world's most valuable startup.

Given its astronomical valuation, increasing popularity and continued criticism, the company has now gone on the defensive. In a recent interview, Zhu was asked what he would do if China’s President, Xi Jinping, personally asked him to remove a video or hand over user data. "I would turn him down," Zhu said. Zhu said TikTok does not share user data with China, or even with its Beijing-based parent Bytedance. TikTok's data is stored in Virginia, with a backup server in Singapore. It's understandable Zhu wants to address the criticism facing TikTok, but it conflicts with a letter ByteDance CEO Zhang Yiming wrote in 2018 saying he would "further deepen cooperation" with the Communist Party of China.

While the rise of TikTok and the criticism that comes with it is unlikely to die down anytime soon, at the end of the day it's just another overvalued startup that just happens to be backed by SoftBank, which probably viewed its investment the same way it did WeWork and Uber.

Leftover Crumbs

  • That will change quick if the S&P 500 drops 2%. According to minutes released from the Federal Reserve's October policy meeting, "most" Federal Open Market Committee members see the latest rate cut as sufficient for the time being. Officials believe the stance of monetary policy "would be well calibrated to support the outlook of moderate growth, a strong labor market, and inflation near the Committee's symmetric 2% objective" following last month's 25 basis point rate cut. In regards to the repo operations, the first since 2008, FOMC members believe a "standing facility could serve as a useful backstop...in the event of outsized shocks to the system." It's probably nothing to worry about though. 

  • No one could've seen this coming. In the latest sign this week that a trade deal is likely no where close to being signed, a "phase one" deal is now unlikely to be signed this year, according to sources. For over a year the market has rallied on hopes of a comprehensive deal before rallying some more over the last month on hopes of a watered-down "phase one" deal that was "agreed in principle" on October 11. The stock market didn't take the news well, potentially finally realizing that a deal isn't close. 

  • They didn't want to miss out on the "not-QE" trade. Sovereign wealth funds piled into stocks at the fastest rate since 2016 in the third quarter, according to eVestment. Passively managed S&P 500 funds saw a net inflow of $1.09 billion from SWF during the third quarter, the first net inflow since the fourth quarter of 2016. "This is an indication that SWFs have slowly seen their sentiment change in the near term to global equities, both to active and passive strategies," said Peter Laurelli, global head of research at eVestment.

  • It appears corruption is rampant. Earlier this month, the president of the United Auto Workers union took an indefinite leave of absence amid an investigation into illegal payoffs to UAW officials. Yesterday, General Motors filed a federal racketeering lawsuit against FCA alleging the automaker bribed UAW officials over multiple years to gain advantages in labor negotiations. "FCA was the clear sponsor of pervasive wrongdoing, paying millions of dollars in bribes to obtain benefits, concessions, and advantages in the negotiation, implementation, and administration of labor agreements over time," GM said in a statement. GM is seeking "substantial damages," but did not disclose the value of those damages. 

  • Could this be the beginning of a larger trend? With the death of the combustible engine all but inevitable over the next decade or two, German auto supplier Continental said it will scale down its engine manufacturing activities. The decision, which Continental says will result in about 5,040 job losses by 2028, is a result of more stringent emissions rules. Continental, which has more than 240,000 employees worldwide, cites various components factories in the U.S., Germany and Italy as being affected.