ReadingResearchRadarInvestment framework
Sign in / Sign up
← Back to reading
NewsMaterial3 min readDisconfirmAI Editorial

Baillie Gifford Investment Manager Natzler: Can the Valuation Discount on ByteDance's AI E-commerce Closed Loop Narrow?

Robert Natzler, investment manager at Schiehallion Fund, posits that ByteDance’s integration of social media, e-commerce, and AI into a single feedback loop generates revenue nearing Meta’s scale but carries a valuation discount of approximately 60%. This gap represents a potential value 'coiled spring,' with convergence conditions including IPO progress and easing of US-China relations.

2026-11-04

Robert Natzler, investment manager at Schiehallion Fund under Baillie Gifford, summarizes his core assessment of ByteDance with a set of figures: ByteDance generated estimated revenue of approximately $186 billion last year, nearly matching Meta’s $201 billion; however, its most recent round valuation reached as high as $600 billion, roughly 60% lower than Meta’s public market capitalization. The profit multiple is even more striking—investors are paying $12 for every $1 of ByteDance’s profit, compared to $22 for Meta. Natzler argues that this disparity is key to understanding why ByteDance resembles a 'coiled spring.'

The mechanism supporting this view lies in ByteDance’s platform integration strategy. Traditional e-commerce begins with user intent—you decide to buy a pair of running shoes and then open a search engine or shopping site. ByteDance can intervene earlier: the user may not have been looking for anything specific but sees a pair of shoes in a dance short video. Its recommendation engine links discovery, entertainment, and shopping into a tight feedback loop—inferring who might be interested, stimulating desire, facilitating the transaction, and using each transaction to improve future recommendations. Natzler emphasizes that no Western platform possesses such complete control over the entire path from entertainment to checkout. This means ByteDance can capture more value generated across sales stages, and its distribution logic follows engagement rather than follower count, lowering barriers for new creators and thereby enhancing the platform’s appeal.

Sign in / Sign up
ReadingResearchRadarInvestment framework

The AI dimension provides additional momentum to this closed loop. Data cited by Natzler includes: ByteDance’s spending on data centers and AI infrastructure reaching up to $70 billion this year; in the 12 months leading to June, the total volume of tokens served by its proprietary foundation models exceeded the combined total of OpenAI and Anthropic; and the AI assistant Doubao has become China’s most popular chatbot by monthly active users. These investments have not yet fully translated into independent revenue streams, but Natzler’s logical argument is that as AI capabilities continue to strengthen, combined with ByteDance’s deep understanding of billions of users’ interests, commercialization pathways may further broaden.

So when will the spring release? Natzler identifies two convergence conditions. First, IPO obstacles are receding—TikTok’s US business has been placed into a joint venture structure with majority US ownership, significantly alleviating one key variable that long hindered listing. Second, even if the valuation does not converge with Meta, merely aligning with listed Chinese tech peers would yield considerable results for Schiehallion shareholders. However, he explicitly acknowledges China-related risks: 'We claim no special insight into the trajectory of US-China relations, but we see good reasons for both sides to find a new understanding, although we cannot assume the doves will prevail.' The boundary of this argument lies in the fact that all valuation figures are private market estimates, untested by public trading; the $600 billion valuation itself may deviate from actual transaction levels; and the convergence implied by the 'coiled spring' metaphor is not inevitable—it depends on the interplay of geopolitics, regulatory paths, and market sentiment.

Sources

  • bailliegifford.com↗
Continue researching →