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ByteDance Defiant: Prefers TikTok Shutdown Over Sale Amid US Ban Threat
ByteDance would prefer to shut down TikTok in the US rather than sell it if legal options fail. The algorithms that power TikTok are crucial to ByteDance's overall operations, making a sale with the algorithms unlikely. TikTok's contribution to ByteDance's revenues and user base is relatively small.
ByteDance, the owner of popular social media app TikTok, would rather shut down the app than sell it if it exhausts all legal options to fight the proposed ban in the United States, according to four sources familiar with the matter.
The algorithms that power TikTok are considered essential to ByteDance's overall operations, making a sale of the app with the algorithms highly unlikely, said insiders close to the parent company.
While TikTok only contributes a small portion of ByteDance's total revenues and daily active users, the parent company would prefer to shut down the app in the US rather than sell it to an American buyer, the sources added.
A shutdown would have limited impact on ByteDance's business, allowing the company to retain its core algorithm, the sources explained. They requested anonymity as they were not authorised to speak to the media. ByteDance declined to comment on the matter.
In response to recent reports suggesting ByteDance is exploring scenarios for selling TikTok's US business without the algorithm, the company stated on its media platform Toutiao that it has no plans to sell TikTok.
TikTok's CEO, Shou Zi Chew, expressed confidence in winning the legal challenge against the legislation signed into law by President Joe Biden, which aims to ban the app. The bill, passed by the US Senate, reflects concerns among lawmakers about data security and potential surveillance by China.
The legislation sets a deadline of January 19 for a sale, but President Biden has the option to extend it by three months if he believes progress is being made.
ByteDance does not publicly disclose its financial performance, but it is known that the majority of its revenue comes from China, primarily from its other apps such as Douyin, the Chinese equivalent of TikTok. According to a separate source, the US accounted for approximately 25% of TikTok's overall revenues last year.
Valuing TikTok is a challenge for investment bankers, as the app's financials are not widely available. Comparisons with competitors like Meta Platforms' Facebook and Snap are difficult to make. Insiders revealed that ByteDance's revenues in 2023 reached nearly $120 billion, up from $80 billion in 2022. Additionally, TikTok's daily active users in the US make up only about 5% of ByteDance's worldwide user base.
The core algorithms used by TikTok are shared with ByteDance's domestic apps, such as Douyin. Separating the algorithms from TikTok's US assets would be a complex process, making it unlikely that ByteDance would consider such an option.
ByteDance is also unwilling to sell its valuable "secret source" - the TikTok algorithm - to rivals, according to the sources. In 2020, the Trump administration attempted to ban TikTok and Chinese-owned WeChat, but the courts intervened. Since then, TikTok has faced partial bans in the US and other countries.
China has indicated its opposition to a forced divestment of TikTok, stating that it would require administrative licensing procedures in accordance with Chinese laws and regulations. TikTok's main assets, excluding the algorithms, include user data and product operations and management, insiders revealed.
Former US Treasury Secretary Steven Mnuchin has expressed interest in forming an investor group to acquire TikTok. However, ByteDance may struggle to attract buyers for TikTok's US assets without the algorithms, the sources said.
ByteDance, with backing from investors such as Sequoia Capital, Susquehanna International Group, KKR & Co, and General Atlantic, was valued at $268 billion in December 2022.
ByteDance would prefer to shut down TikTok in the US rather than sell it if legal options fail.
The algorithms that power TikTok are crucial to ByteDance's overall operations, making a sale with the algorithms unlikely.
TikTok's contribution to ByteDance's revenues and user base is relatively small.
Source: REUTERS