TikTok’s latest enemy: its former employees

Should your shares in a company be worth less if you no longer work there? ByteDance, the Chinese tech conglomerate that owns TikTok, thinks so. And some of its ex-employees are pissed.

As you may have read by now, ByteDance earlier this week notified its thousands of employees in the US that, for the first time, they can begin the process of selling their stock back to the company. Given that ByteDance has no near-term plans to go public or spin off TikTok as a standalone entity, this employee buyback is the only option most staffers have for cashing out their vested shares.

These buybacks are fairly common among late-stage, privately-held tech companies, and ByteDance has done them regularly outside of the US for years. But there’s a big wrinkle to how the buyback works in the US that many employees weren’t expecting when they received the details on Monday: if you no longer work for ByteDance, your stock is worth 20 percent less than if you’re a current employee. This has caught many US shareholders by surprise, with some questioning whether what ByteDance is doing is illegal. At least one former TikTok manager has already filed a complaint with the SEC.

Here’s how the buyback works, according to the info packet sent to employees that I was shown by a source: ByteDance will buy up to 2,277,120 of its “Class A ordinary shares” that were vested as of September 15th. Current employees get to sell their vested stock for $160 per share before taxes, implying a company valuation of $223.5 billion (yes, ByteDance is huge — more on that in a moment). Former employees, meanwhile, get to sell for $128 per share.

It’s extremely unusual for a company in the US to say that the same class of shares is worth a different price depending on who the shareholder is. I checked with the folks at Levels.fyi, who said they “have not heard of a case like this previously.” Some ex-ByteDance employees I’ve spoken with this week are fuming.

Leading the pack is Patrick Ryan, a lawyer who was TikTok’s lead technical program manager for security until the summer of 2022. He made headlines in 2020 for suing former President Donald Trump over his proposed TikTok ban. This time, he’s organizing a group of ex-employees to push back on ByteDance.

He has filed a complaint with the SEC about the different stock prices and how ByteDance has made it difficult to access the buyback program’s details. (You can’t download or forward the watermarked documents through ByteDance’s web portal, which makes it difficult to share the details with your lawyer, accountant, or financial advisor.) He’s also upset that ByteDance has blocked his request to sell his vested shares to another qualified buyer, Setter Capital, at a higher price point.

Employees are also frustrated that this buyback is being done at a discount to what ByteDance offered non-US workers last year, when the valuation was lowered after the markets dropped. “They mismanaged it,” a former senior manager told me.

Ryan has posted publicly about the buyback on social media — I recommend this thread on LinkedIn that includes comments from other ex-TikTok employees as well. He’s organizing a Discord group for other employees who are upset about the buyback, which he told me now numbers several dozen people. Some are afraid that the company will “take shares away if they do anything because apparently they’ve been told this at some point,” he says.

Here’s what ByteDance’s communications department had to say when I asked about all this: “Our US buyback program offers a unique opportunity for employees of a private company. Our pricing philosophy prioritizes our current employees, which also applies to former employees who were terminated due to business reorganization reasons.

Participation in this program is not mandatory and participants can choose to sell their shares at a time and price that works for them.”

Along with details about the buyback, ByteDance shared its high-level financials with employees this week, part of which you can view in the above chart.

TikTok’s owner, thanks largely to its ads business in China, is quite profitable. Last year, ByteDance’s operating profit was only about 30 percent less than Meta’s. Its available cash increased from $22.33 billion at the end of last year to $30.39 billion at the end of March 2023. TikTok’s fate in the US may still be uncertain, but one thing is for sure: there’s a firehose of money powering it.

It has been a busy week for Linda Yaccarino, who seems set on quickly moving past her disastrous Code Conference performance I covered last week.

She started this week by going back to the early 2000s and announcing a partnership between X and Paris Hilton, the “queen of pop culture, music, business, and TV.” After I covered the deal on The Verge, one of you pointed out that Yaccarino was recently named board chair for Hilton’s management company, YMU. That level of self-dealing is par for the course in Muskworld, of course, but it’s still pretty cringe.

It looks like whatever bespoke revenue sharing agreement X struck does not keep Hilton from posting on Threads, either. “In old times, we debated whether Paris had enough star power to even merit a visit to our blue room,” a former Twitter exec told me this week. “And now she’s the centerpiece. It’s sad.”

Yaccarino then traveled to Dallas, Texas, for ex-Snap business chief Imran Khan’s invite-only “Khanference,” where she spoke to a room full of money managers, product execs, and CEOs. People who attended told me that she came across as far more confident than she did at Code and that the X engagement numbers she shared sounded impressive.

On Thursday, she updated X’s lenders on the business plan, telling them that the company is cash-flow positive if you exclude its debt. (I liked Hunter Walk’s joke about this: “Not including the cost of my mortgage payments, my house is already cash flow positive.”) She confirmed that X is testing three subscription tiers, one of which would hide ads entirely.

Inside X, Yaccarino has yet to address the whole company, aside from a couple of emails that were copy-and-pastes of public posts about the business. A joint all-hands she was supposed to do with Musk several weeks ago never happened without explanation. If you’re an engineer or product person at X, you answer to Musk, who has over a dozen direct reports.

After her Code performance, a former Tesla exec pinged me to say that “she demonstrates the same symptoms that I saw at Tesla. People so concerned with ‘how will Elon react to what I’m saying,’ or ‘what would Elon say’ that they’re unable to carry on basic conversations.

He’s unpredictable in his reactions because he’s mentally unstable… I don’t wish that on anyone.”

What I’m paying attention to in the world of AI right now:

The timing of Epic’s Unreal Fest in New Orleans this year was a bit awkward, given the significant round of layoffs that Tim Sweeney just announced. Facing the company’s developer community earlier this week, he explained the rationale behind the cuts with refreshing bluntness for a CEO.

About 10 weeks ago, Epic Games “realized we were running into a financial problem,” he said, and that the company needed to “stabilize our finances so that we won’t run out of money as we build the metaverse.” Management didn’t want to “spread the pain around equally,” so the cuts were targeted at areas that are less central to its core objectives.

The engineering team was only hit by about 3 percent, for example, while sales and marketing was hit by more than 30 percent. “It’s going to result in the degradation in quality of some of our work, and I’m sorry for that,” Sweeney told the room full of developers.

“A funny thing about being funded so heavily by Fortnite over the past six years is that we’ve had different parts of our business get disconnected from their revenue streams,” he explained. “We have big teams serving different industry verticals without revenue to support it.” Starting next year, he said that non-gaming uses of the Unreal Engine will move to a “seat-based enterprise software licensing model,” with the goal of reviving revenue in that area of the business.

The elephant in the room while Sweeney talked was Roblox, of course. Roblox is far ahead of Epic’s creator efforts and arguably has a more expansive vision for what its platform can become. With only 2,800 employees versus Epic’s roughly 4,000, Roblox also has a more disciplined cost structure. Sweeney’s work is cut out for him.

“You get up in the morning, you brush your teeth, and you search on Google.” - Microsoft CEO Satya Nadella in court during the Google antitrust trial.

This case continues to provide fascinating insight into how Google works and its unrivaled influence over the web. Eddy Cue’s testimony about Apple’s view of the search deal wasn’t as exciting as I’d hoped. Nadella, however, was fiery on the stand. He revealed how Microsoft was willing to lose money to make Bing the default search engine on the iPhone, but it couldn’t overcome Apple’s lucrative deal with Google.

It’s good that Google doesn’t get to hide the Justice Department’s trial exhibits from the public. One of my favorites is an internal communications training doc by VP of finance Michael Roszak that says only “cigarettes or drugs” could rival the economics of search advertising.

A roundup of what else happened in the tech industry this week that you may have missed:

Some interesting career moves I noticed this week:

That’s it for this week. I’d love to hear your feedback, story ideas, and tips.

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