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Insiders Suggest ByteDance will Close US TikTok Rather than sell it

Insiders Suggest ByteDance will Close US TikTok Rather than sell it

According to four sources, ByteDance would sooner close TikTok than sell it if the Chinese firm used all legal avenues to challenge US app store prohibition laws.

According to sources close to ByteDance, TikTok’s algorithms are essential to its operations, making a sale unlikely.

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Not only does TikTok have over a billion users, but it also runs at a loss and contributes very little to ByteDance’s overall income and DAUs. Rather than sell the app to a possible American buyer, the parent company would prefer to have it shut down in the US, according to their statement.

Insiders, who requested anonymity because they were not authorized to speak to the media, said ByteDance’s core algorithm would remain unchanged and a shutdown would not affect operations.

In response to a report by The Information stating that ByteDance is considering selling the US business of TikTok without the algorithm that suggests videos to users, the company issued a statement late Thursday on Toutiao, the media platform it owns, denying any intention to sell TikTok.

When asked for comment, a representative from TikTok cited the Toutiao statement from ByteDance.

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On Wednesday, TikTok CEO Shou Zi Chew stated the social media company’s expectation of winning a court fight against Joe Biden’s approved legislation that would restrict the app’s popular short videos, which 170 million Americans use.

Concerns among US legislators that China could obtain user data or conduct surveillance through the app were the driving force behind the bill’s sweeping passage by the US Senate on Tuesday.

Tight Deadline for TikTok Sale: One Day Before Leaving Office

The signing by the US president sets a sale deadline of 19 January, which is one day before Biden’s tenure is about to end. However, he has the option to extend the deadline by three months if he thinks privately owned ByteDance is making good progress.

Financial performance and specifics of any of ByteDance’s units are not disclosed to the public. Douyin is the Chinese version of TikTok, and according to multiple reports, the majority of the company’s revenue still comes from the Chinese market. A second person with first-hand knowledge of the matter indicated that last year, the United States was responsible for approximately 25% of TikTok’s total revenues.

Due to the lack of transparency and ease of access to TikTok’s financials, Reuters spoke with over six investment bankers who expressed difficulty in estimating the app’s value in comparison to Facebook and Snap, two similar platforms owned by Meta Platforms.

Two out of the four sources estimated that ByteDance’s 2023 revenue was close to $120 billion, up from $80 billion the previous year. Almost 5% of ByteDance’s DAUs globally are American TikTok users.

According to three sources, TikTok and ByteDance’s domestic apps, such Douyin, which is a platform for short videos, use the same underlying algorithms. According to the sources, it would be extremely challenging to separate TikTok’s algorithms from the parent business, ByteDance, in China, making a divestiture of the algorithms unfeasible.

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Beyond the Code: User Data Key in TikTok Sale

The four sources also mentioned that ByteDance would not consent to sell its TikTok algorithm, which is considered one of its most valuable assets, to competitors. Sources also said that ByteDance is not likely to contemplate the highly complex process of extracting the algorithms from TikTok’s US assets. Two of the sources indicated that, apart from algorithms, TikTok’s most valuable assets are the data from its users and the management and operations of its products.

The Trump administration attempted to prohibit WeChat and TikTok in 2020, but the courts blocked their ban. Since then, the app has been subject to partial and attempted restrictions in various nations, including the US.

During a congressional hearing in the US in March of last year, China hinted that it would probably reject a forced divestiture of the TikTok app.

“China will firmly oppose it [the forced sale of TikTok],” stated a representative for the Ministry of Commerce during a news conference in Beijing in late March 2023.

Steven Mnuchin, the former US treasury secretary, has shown interest in forming an investor consortium to potentially acquire TikTok. According to the sources, ByteDance might have a hard time finding buyers for TikTok’s US assets, which do not include algorithms.

When ByteDance proposed to buy back $5 billion in shares from investors in December, it was worth $268 billion.

About Davie Bancroft

Davie Bancroft is an accomplished author with a strong focus on investment and the tech business landscape. With extensive knowledge and experience in these fields, he provides valuable insights into emerging trends and opportunities. Davie's writings explore the intersection of technology and finance, offering practical advice for investors and entrepreneurs. His expertise and analytical approach make him a trusted resource for those seeking to navigate the dynamic world of investments and tech startups.