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1/ Some thoughts on TikTok as a potential threat to $FB. My understanding is still evolving here, so would love to hear the thoughts of some smart investors who have previously written about $FB. @JerryCap @borrowed_ideas @iramneek @compound100x @value_invest12
2/ When you open Instagram, unless you go to the Discover page, what you see is largely limited to posts from accounts you follow. But when you open TikTok, you're seeing content from anyone, anywhere - complete strangers that you don't follow.
3/ This makes it easier for a video to go viral compared to Instagram. On TikTok you don't need to have a lot of followers to go viral whereas on Instagram you do.
4/ Of course, showing the user content from all corners of the earth could lead to a worse user experience if the content isn't relevant. But TikTok's AI algorithm is so advanced (and unmatched) that it recommends videos that you are more likely to find interesting.
5/ This means engagement is higher and virality is more democratized. Higher engagement is due to 1) stronger recommendation engine and 2) full-screen videos which are tougher to ignore vs scrolling through IG's main feed, where ads are largely static with exception of stories.
6/ Higher engagement could make TikTok more attractive to advertisers. However, TikTok's targeting capabilities still trail IG's. Advertisers can leverage an extensive influencer base, but still can't target, say, 25-30 year old males in the Midwest in the same way that IG can.
7/ This is really what needs to happen if TikTok is going to meaningfully take ad dollars from IG. Of course, there has been public concern about how Tiktok might use the data required for targeting considering it's a Chinese company. Especially sensitive since many users are <18
8/ TikTok has tried to distance itself and has its own operations and its own data centers outside China, but that probably won't change the perception much.
9/ These data privacy concerns are less pronounced outside the US and developed Europe, so perhaps this is where TikTok represents the biggest threat to IG. Most headlines focus on the political backlash to TikTok in the US, but the US is only 20% of TikTok's non-China user base.
10/ TikTok's biggest user base ex-China is India, where it has >100m MAUs and is bigger than IG. Overseas mkts are vital to IG's growth as DM matures, so perhaps the real concern is whether TikTok can improve its targeting capabilities and divert ad dollars from IG outside the US
11/ $FB is a wide-moat business led by a shrewd capital allocator, and the valuation still seems fair-to-attractive on a normalized FCF basis. But what really matters is the direction of the moat. Is it getting wider?
