Byte options discussion

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After the National Day, ByteDance employees received the second round of employee option repurchase emails this year, with a repurchase price of $155 per share. This price is about 9% higher than the previous round of repurchase price, and also in line with the latest employee option grant price.

“This time everyone is discussing redemption very much.” Qi Xin resigned from Byte in the first half of this year. He has worked in Douyin for several years before, and his performance has been relatively satisfactory. Every year, he will take out part of the year-end bonus to buy shares.

Since the repurchase price of options is rising every year, and the fund she bought is covered, Qi Xin believes that Byte’s stock is a safer investment method than many funds and stocks.


But since last year, things have changed. First of all, the general environment has made many people’s expectations for the future less optimistic. Coupled with the long-term listing time of ByteDance, it makes people consider whether to hold cash in their hands.

After receiving the repurchase email, Qi Xin was immediately pulled into a privately organized group of hundreds of colleagues/ex-colleagues, and there was only one thing to discuss: should it be redeemed? Once listed, will the price be cut in half?

“Maybe one day we will return to the byte”

I asked random current and former employees for a few bytes, and all eligible employees received emails. Similar to other big manufacturers, it takes 4 years for Byte’s options to be granted and fully vested, and the annual vesting ratio is 15%, 25%, 25%, and 35%.

In terms of buyback prices alone, it seems as if the chill doesn’t exist. Public information shows that since 2017, Byte has provided employees with option buyback opportunities twice a year, and the price has risen steadily each time. The last two were in October 2021 and April 2022, at $132 per share and $142 per share, respectively.

A classmate who just graduated said that his equity has always been in and out, and “every year, I use the year-end bonus to exchange a little.”

However, in recent months, Byte has not been able to survive alone. Although Byte is not listed, its valuation has been closely watched. In July this year, some foreign media said that the valuation of Byte was nearly halved, and “investors are buying shares of China’s largest start-up company at a valuation of less than $275 billion”, adding that some investors offered even low prices to $250 billion. In 2021, Byte’s valuation was as high as $500 billion.

Byte has not responded to these rumors so far.

As for the timing of the listing, Byte’s new CFO, Gao Motion, said in a face-to-face event within the company that Byte currently has no specific listing plan and no timetable.

For employees, even if this issue is not considered, the company has recently lost the momentum of the previous run.

According to a document that was exposed not long ago, Byte’s revenue in 2021 will be US$61.7 billion (about 439.1 billion yuan), an increase of 86% year-on-year. Although far ahead of other Internet giants, ByteDance’s revenue in 2020 was 236.6 billion yuan, a year-on-year increase of 111%.

At the same time, the operating loss of Byte in 2021 will reach 7.15 billion US dollars (about 50.9 billion yuan), which is 3.34 times that of 2020.

For Byte, it is difficult to expand regardless of cost. Next, whether it is the main battlefield Douyin or new businesses such as PICO, it will face a protracted battle.

Can you continue to trust the company this year? On social platforms, there are a lot of voices who want to sell options for cash, and there are even people who specifically post to persuade them to sell.

But Qi Xin chose to wait and see. She is considered an “old employee” of Douyin, and the purchase price can be regarded as a discount, but once redeemed and tax deducted, it can only be regarded as a small profit. She feels that there is still room for growth in bytes.

Moreover, before Qi Xin resigned in the first half of this year, ByteDance had already made a redemption. At that time, the price was $142 per share, “I also took it.” Looking at the current repurchase price of $116 for resigned employees, the gap is even more clear, which always makes her a little unwilling.

More employees, in fact, do not have many choices, they can only choose to wait and see. In the last round, the option grant price of ByteDance was US$195 per share. The options obtained at this price, converted into the general salary package and joined by employees, will of course not choose to redeem. The redemption prices for the last two rounds were $142 and $126 from near to far.

Ai Ying is an employee of Byte Education Line, who was optimized just last year. She laughed at herself, “I’m the little leek of bytes.”

She didn’t catch up with the army that abolished the education line at that time, and she didn’t get the “privilege” that she could exchange the price of the current employee after leaving the company. She could only get a 25% discount like other former employees. She redeemed the option once at a price of $126, and the amount was not large, but now she can only lose money by redeeming it, which is “stuck”.

However, Ai Ying is relatively lucky. Another colleague who jumped from New Oriental to Byte Education was graduated in less than half a year and failed to get the option.

In fact, most of the people who said they wanted to redeem on the Pulse said they needed money urgently, otherwise they would not sell.

A retired employee said half-jokingly, “Let’s just leave it alone, maybe one day I can make money back to Bytes.”

There are even employees who think that “Byte YYDS”, “I regret not having all in options, I also went to speculate in A shares, and when it fell like this, the option repurchase price has risen by more than 30% compared to when I bought it last year (in RMB) “.

Another middle-level person who had left Byte two years ago and was unwilling to sell it at this time. He planned to fight once, “I believe in Yiming”.

Stop expecting to get rich overnight

The waves of history cannot be traced back. Whether in Maimai or the Byte employees I communicated with, there is almost no expectation of “getting rich overnight”.

The “salary package” of Byte employees generally includes two parts: cash and options, and options can allow employees to enjoy the dividends of the company’s growth in valuation.

In April 2019, ByteDance also launched the company’s internal option redemption plan, which is different from the general equity incentive method. Allow employees with a performance appraisal of M and above (about 60%) to convert the year-end bonus into an option package with a corresponding number of shares.

The grant price of byte options has skyrocketed over the past few years, from around $40 per share in 2019 to $195 per share at the time of the last option grant. The impact of this on employees is that a certain amount of option package/year-end bonus can be converted into fewer shares.

If there is a definite listing signal in sight, then the rise in the stock price will be more beneficial to the earlier option holders. Byte employees with widely held options will usher in a wave of benefits after the company’s IPO.

However, the internal and external environment faced by Byte, which has been delayed in listing, is becoming more and more complicated. Wind data shows that as of August, a total of 48 companies in Hong Kong stocks have completed IPOs, with a breakout rate of more than 80%. The policies and capital air-conditioning groups scattered in the Chinese stock market are still entrenched.

Byte took the initiative to lower its valuation. According to media reports, Byte has lowered the option grant price to US$155 per share, which is about 20% lower than the previous round of US$195; at the same time, a special additional issuance of options will be carried out. If employees hold the grant price higher than 155 US dollars per share Options that have not been fully vested in US dollars have the opportunity to obtain additional issuance. The number of employees in this group exceeds 30,000.

That said, there have been significant numbers of employees authorized to “buy” options with year-end bonuses at premium prices over the past few quarters. For them, although the repurchase price offered by the company has also been rising, from $132 last year to $155, maintaining an increase of about 9%, but its repurchase price and grant price have been inverted. The repurchase price of resigned employees will also be 25% off, further upside down.

Diverging opinions on Pulse

ByteDance employees are being forced to learn to control their expectations.

The additional issuance of bytes is a kind of comfort and compensation. What also needs to be appeased is the shareholders who have been with Byte for 10 years.

Since the acquisition of Shunwei Capital and SIG Haina Asia Investments in 2012, to the latest financing led by Sequoia Capital and KKR disclosed by the media in 2020, Byte’s shareholders sit on the board of directors with prominent US dollar funds and RMB funds. When the smooth exit mechanism was blocked and the general environment reversed, the anxiety of US dollar investors can be imagined.

Investor patience has a time limit. According to ByteDance’s articles of association, if the company is not listed, starting in November 2022, some preferred stock investors have the right to ask the company to redeem their equity in cash.

In September of this year, before this time limit, Byte announced its first shareholder-oriented repurchase plan – it plans to use no more than $3 billion in cash to buy back some shares of existing shareholders at a price of no less than $177 per share, corresponding to The company is valued at no more than $300 billion.

Of course, in the case that the overall capital market environment is not optimistic enough, Byte is also guiding everyone to lower expectations. Whether it is the CFO’s statement on the listing, or the book loss last year.

After knowing all the circumstances, the people who stayed behind for long-distance running may have long-term confidence in the “Douyin Group”, perhaps because this is the healthiest boat in comparison.