Time and destiny — ByteDance is in a race against both.
The Chinese tech group, which sold a majority stake in TikTok to U.S. investors in January, presents a paradox. Overseas revenue is rising, its AI apps have surpassed 100 million daily users, and its e-commerce business is still expanding.
Yet net profit slumped by more than 70% in 2025, according to reports from multiple media outlets on the morning of April 20. By evening, Li Liang, a vice-president at the company’s Douyin unit, responded: the figure was calculated under international accounting standards and reflected increased investment in new businesses as well as changes in preferred shares and stock option costs, not the underlying performance of operations.
Both claims are true. They are simply describing different things: one accounting, the other strategic.
Accounting versus reality
The headline figure appears alarming. Media estimates suggest ByteDance generated about $31 billion in net profit in 2023 and $33 billion in 2024. A drop of more than 70% in 2025 would imply profits of roughly $9 billion.
But the key lies in the accounting framework. Under International Financial Reporting Standards, preferred shares held by investors in private companies are treated as financial liabilities. As a company’s valuation rises, the fair value of those shares increases and the accounting treatment records that increase as an expense. No cash leaves the business but reported net profit falls.
The same applies to employee stock options. ByteDance issued large volumes of options in 2025, particularly to its AI-focused Seed team. As valuations rise, so does the accounting cost — the more valuable the company becomes, the higher these non-cash expenses appear on paper.
This is not unprecedented. When Xiaomi filed for its IPO in 2018, it reported a net loss of 43.9 billion yuan($6.4 billion) for 2017. Strip out preferred share valuation changes, however, and operating profit was 5.3 billion yuan.
ByteDance’s situation is similar. Excluding these accounting factors, Li said revenue and profit are still growing, with TikTok’s e-commerce unit generating income. Yet his statement also contained a more telling admission: slowing growth in Douyin e-commerce and rising investment in new businesses have led to a slight decline in operating margins.
Where the money is going
ByteDance acknowledged that Douyin e-commerce growth is slowing. Gross merchandise value (GMV) rose about 30% in the first 10 months of 2025 — respectable, but a clear deceleration from the near-doubling seen in 2023.
The platform is transitioning from a high-growth engine to a cash cow. User growth has plateaued, traffic costs are rising, and competition from rivals is intensifying. The profits it still generates are being redirected — primarily into artificial intelligence.
ByteDance reportedly boosted AI investment in the second half of 2025, spanning computing power, data centers and hiring, costs that weighed directly on profitability. Capital expenditure last year is estimated to have been about 150 billion yuan and plans for 2026 are even more aggressive, with a budget of roughly 157 billion yuan.
The spending is already yielding scale. By the end of 2025, ByteDance’s AI chatbot Doubao had exceeded 100 million daily active users, making it China’s first AI-native app to reach that level. But monetisation remains limited.
TikTok: the new revenue stream?
But while growth at home is slowing, overseas expansion is accelerating. The catalyst is TikTok Shop. By transforming from a mere video platform into a commerce infrastructure provider, TikTok has built a structural revenue stream from commissions and logistics fees that is more resilient than cyclical ad spending. If current trends hold, overseas revenue could approach 40% of the group total in 2026.
ByteDance is essentially executing a “profit swap” reminiscent of Amazon’s early subsidization of Amazon Web Services or Meta’s pivot to the Metaverse. It is using today’s TikTok and Douyin profits to buy tomorrow’s seat at the AI table.
The urgency of Li’s public rebuttal suggests that the 70% drop narrative hit a nerve, potentially threatening employee morale or private valuation benchmarks. By reframing the decline as a technicality, ByteDance is attempting to manage market expectations while it navigates two fundamental risks.
The first is a race against time. ByteDance is investing over 100 billion yuan annually in AI; if a clear monetization path cannot be found within three to five years, these investments will become sunk costs.
The second is a race against destiny. Overseas revenue accounts for over 30% of total revenue and is growing rapidly, but TikTok’s position in the U.S. is far from stable. If its overseas business is impacted, ByteDance will lose its biggest growth engine.
Source:
ChinaVenture
