According to reports by Reuters, ByteDance, the Chinese parent company of the popular short-form video app TikTok, is willing to shut down the app in the United States if it exhausts all legal options to fight legislation banning the platform from US app stores.
According to four sources close to the company, ByteDance considers the algorithms that power TikTok to be core to its overall operations, and would be highly unlikely to sell the app with these algorithms included.
The sources, who requested anonymity because they lacked authorization to speak to the media, revealed that TikTok contributes only a minor portion of ByteDance’s total revenues and daily active users.
As a result, the parent company would prefer to have the app shut down in the United States in a worst-case scenario rather than sell it to a potential American buyer.
A shutdown would have a limited impact on ByteDance’s business while allowing the company to retain its core algorithm, the sources added.
ByteDance declined to comment on the matter but stated in a post on its media platform, Toutiao, that it had no plans to sell TikTok.
Concerns that China could access American data or use the app for surveillance led the United States Senate to recently pass a bill.
President Joe Biden signed the legislation into law, establishing a January 19 deadline for a sale, subject to a three-month extension if ByteDance continues to make progress.
Despite TikTok CEO Shou Zi Chew’s confidence in winning a legal challenge to block the legislation, ByteDance appears to be considering its options.
The company’s revenues rose to nearly $120 billion in 2023 from $80 billion in 2022, with the U.S. accounting for about 25% of TikTok’s overall revenues last year, according to sources.
Investment bankers interviewed by Reuters noted the difficulty in valuing TikTok compared to its competitors due to the lack of publicly available financial information.
The sources underscored the intricacy of disentangling TikTok’s algorithms from its U.S. assets, given that ByteDance in China is the registered intellectual property.
The courts blocked the Trump administration’s attempt to ban TikTok and WeChat in 2020.
China has indicated that it would likely reject a forced divestment of the TikTok app, with a spokeswoman for the Ministry of Commerce stating that such a sale would require administrative licensing procedures in accordance with Chinese laws and regulations.
While former Treasury Secretary Steven Mnuchin has expressed interest in assembling an investor group to buy TikTok, the sources suggest that ByteDance may struggle to find buyers for TikTok’s U.S. assets without the algorithms included.
