Achi news desk-
Hong Kong –
TikTok owner ByteDance would rather shut down its loss-making app than sell it if the Chinese company exhausts all legal options to fight legislation to ban the platform from US app stores , four sources said.
The algorithms that TikTok relies on for its operations are considered core to ByteDance’s overall operations, which would make selling the app with algorithms highly unlikely, said the sources close to the parent.
TikTok accounts for a small portion of ByteDance’s total revenue and daily active users, so the parent would prefer the app to shut down in the US in a worst-case scenario 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 abandon its core algorithm, said the sources, who declined to be named as they were not authorized to speak to the media.
ByteDance declined to comment.
It 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 saying ByteDance was exploring scenarios for selling the TikTok business in the US without the algorithm that recommends videos to TikTok users.
In response to a Reuters request for comment, a TikTok spokesperson referred to a ByteDance statement posted on Toutiao.
TikTok CEO Shou Zi Chew said Wednesday that the social media company expects to win a legal challenge to block legislation signed into law by President Joe Biden that he said would ban his popular short video app used by 170 million Americans.
The bill, which was 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.
Biden’s signing sets a Jan. 19 deadline for a sale — a day before his term is set to expire — but he 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, mostly from its other apps such as Douyin, the Chinese equivalent of TikTok, separate sources have said.
The United States accounted for about 25 percent of TikTok’s overall revenue last year, a separate source with direct knowledge said.
Reuters interviewed more than half a dozen investment bankers who said it was difficult to appreciate how much TikTok is worth compared to similar rivals Meta Platforms’ META.O Facebook and Snap SNAP.N, since TikTok’s financials are not available in wide nor easily accessible.
ByteDance’s 2023 revenue 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 only about 5% of ByteDance’s DAUs worldwide, one of the sources said.
TikTok shares the same core algorithms as ByteDance’s domestic apps such as short video platform Douyin, three of the sources said. Its algorithms are considered better than ByteDance’s competitors such as Tencent and Xiaohongshu, one of them said.
It would be impossible to dislodge TikTok with its algorithms as their intellectual property license is registered under ByteDance in China and therefore difficult to detach from the parent company, the sources said.
Moreover, separating the algorithms from TikTok’s US assets would be a very complicated procedure and ByteDance is unlikely to consider that option, the sources added.
Nor would ByteDance agree to sell one of its most valuable assets — its “secret source” — to competitors, the four sources said, referring to TikTok’s algorithm.
In 2020, the Trump administration tried to ban Chinese-owned TikTok and WeChat but was blocked by the courts. The short-form video app has since faced partial and attempted bans in the US and other countries.
China indicated that 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),” a spokesman for the Ministry of Commerce said at a news conference in Beijing in late March 2023.
“Selling or divesting TikTok involves exporting technology and must go through administrative licensing procedures in accordance with Chinese laws and regulations.”
In 2020, China unveiled the Export Control Law and the final text extended the definition of “controlled items” from previous drafts. According to state media, the amendment ensures that exports of algorithms, source codes and similar data are subject to an approval process.
Algorithms aside, TikTok’s main assets include user data and operations and product management, two of the people said.
Former US Treasury Secretary Steven Mnuchin has expressed interest in putting together an investor group to try to buy TikTok. ByteDance may struggle to attract any buyers for TikTok’s US assets other than algorithms, the sources said.
ByteDance, backed by Sequoia Capital, Susquehanna International Group, KKR & Co KKR.N and General Atlantic among others, was valued at $268 billion in December when it offered to buy back about $5 billion worth of shares from investors, Reuters reported on the when .
(Reporting by Kane Wu and Julie Zhu; additional reporting by Josh Ye in Hong Kong, Sheila Dang in Austin, Texas and Milana Vinn in New York; Editing by Sumeet Chatterjee, Jane Merriman and Jan Harvey)
