ByteDance would prefer to shut down TikTok rather than sell it if the Chinese company exhausts all legal options to fight legislation banning the platform from app stores in the United States, four sources said.
The algorithms that TikTok relies on for its operations are considered critical to ByteDance’s overall operations, which would make a sale of the algorithm-powered app highly unlikely, sources close to the parent company said.
Although TikTok is very popular and has more than one billion users, it still operates at a loss and represents a small part of ByteDance’s total revenue and daily active users. In the worst case, the parent company would prefer to close the app in the United States rather than sell it to a potential American buyer, they said.
A shutdown would have a limited impact on ByteDance’s business, while the company would not have to give up its core algorithm, said the sources, who declined to be identified because they were not authorized to speak to the media.
ByteDance said late Thursday in a statement posted on Toutiao, a media platform it owns, that it had no plans to sell TikTok, in response to an article by The Information that said ByteDance is exploring scenarios for selling the TikTok business. TikTok in the United States without the algorithm it recommends. videos to TikTok users.
In response to a request for comment, a TikTok spokesperson referred to ByteDance’s statement posted on Toutiao.
TikTok CEO Shou Zi Chew said Wednesday that the social media company hopes to win a legal challenge to block legislation signed by Joe Biden that he said would ban its popular short-video app used by 170 million Americans. .
The bill, overwhelmingly passed by the US Senate on Tuesday, is driven by widespread concerns among US lawmakers that China could access Americans’ data or use the app for surveillance.
The US president’s signature sets a deadline of January 19 for a sale, one day before Biden’s term expires, but could extend the deadline by three months if he determines that privately held ByteDance is making progress .
ByteDance does not publicly disclose its financial performance or the financial details of any of its units. The company continues to make most of its money in China, mainly from its other apps such as Douyin, the Chinese equivalent of TikTok, separate sources said. The United States accounted for about 25% of TikTok’s total revenue last year, another source with direct knowledge said.
Reuters interviewed more than half a dozen investment bankers who said it was difficult to value how much TikTok is worth compared to its Meta Platforms competitors Facebook and Snap, as TikTok’s financials are not widely available or easily accessible.
ByteDance’s revenue in 2023 rose to nearly $120 billion in 2023 from $80 billion in 2022, two of the four sources said. TikTok’s daily active users in the US also account for about 5% of ByteDance’s DAU worldwide, one of the sources said.
TikTok shares the same core algorithms with ByteDance’s domestic apps, such as short video platform Douyin, three of the sources said. It would be impossible to get rid of TikTok with its algorithms as its intellectual property license is registered under ByteDance in China and is therefore difficult to separate from the parent company, the sources said.
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ByteDance would also not agree to sell one of its most valuable assets, its “secret source,” to rivals, the four sources said, referring to the TikTok algorithm. Additionally, separating the algorithms from TikTok’s US assets would be an extremely complicated procedure, and ByteDance is unlikely to consider that option, the sources added. Excluding algorithms, TikTok’s main assets include user data and operations and product management, two of the people said.
In 2020, the Trump administration attempted to ban Chinese-owned TikTok and WeChat but was blocked by the courts. The short-form video app has since faced partial bans and attempted bans in the US and other countries.
China indicated it would likely reject a forced divestment of the TikTok app during a US congressional hearing in March last year.
“China will firmly oppose it.” [the forced sale of TikTok]“said a spokesperson for the Ministry of Commerce at a press conference in Beijing in late March 2023.
Former US Treasury Secretary Steven Mnuchin has expressed interest in forming a group of investors to try to buy TikTok. ByteDance may have difficulty attracting buyers for TikTok’s US assets, excluding algorithms, the sources said.
ByteDance was valued at $268 billion in December when it offered to buy back about $5 billion in shares from investors.