TikTok owner ByteDance would prefer to shut down its loss-making app rather than sell it as the Chinese company exhausts all legal options to fight legislation banning the platform from app stores in the United States, Reuters reported, citing on four sources.
The algorithms that TikTok relies on for its operations are considered central to ByteDance’s overall operations, which would make a sale of the app with algorithms highly unlikely, sources close to the parent company said on Thursday.
TikTok accounts for only a small portion of ByteDance’s total revenue and daily active users, so in a worst-case scenario the parent company would rather have the app shut down in the U.S. than sell it to a potential American buyer, they said.
A closure would have a limited impact on ByteDance’s business while the company would not have to abandon its core algorithm, said the sources, who asked not to be named because they were not authorized to speak to the media.
ByteDance declined to comment.
Late Thursday, a statement posted on Toutiao, a media platform the company owns, said it had no plans to sell TikTok, in response to an article by technology platform The Information that ByteDance was considering scenarios for selling the U.S. TikTok’s business without checking the algorithm that recommends videos to TikTok users.
In response to Reuters’ request for comment, a TikTok spokeswoman referred to ByteDance’s statement published on Toutiao.
TikTok CEO Shou Zi Chew said Wednesday that the social media company expects to win a court challenge to block a law signed by President Joe Biden that he said would restrict the popular short-video app used by 170 million Americans.
The bill, which overwhelmingly passed the U.S. Senate on Tuesday, stems from widespread concern among U.S. 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 ends – but he could extend the deadline by three months if he finds that privately held ByteDance is making progress.
ByteDance does not publicly disclose its financial performance or the financial details 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, various sources said.
The U.S. accounted for about 25 percent of TikTok’s total revenue last year, a separate source with direct knowledge said.
According to two of the four sources, ByteDance’s revenue in 2023 rose from $80 billion in 2022 to nearly $120 billion in 2023. According to one of the sources, TikTok’s daily active users in the US also only make up about 5 percent of ByteDance’s DAUs worldwide.
Algorithms that cannot be purchased
According to three sources, TikTok shares the same core algorithms with domestic ByteDance apps such as short video platform Douyin. Its algorithms are considered better than those of ByteDance competitors such as Tencent and Xiaohongshu, one of them said.
It would be impossible to divest TikTok with its algorithms because the intellectual property license is registered with ByteDance in China, making it difficult to separate it from the parent company, the source said.
ByteDance also would not agree to sell one of its most valuable assets – its “secret source” – to competitors, the four sources said, referring to the TikTok algorithm.
In 2020, the Trump administration tried to ban TikTok and Chinese-owned WeChat, but was blocked by the courts. Since then, the short-video app has faced partial and attempted bans in the United States and other countries.
China indicated at a US Congressional hearing in March last year that it would likely oppose a forced divestment of the TikTok app.
“China will strongly oppose it [the forced sale of Tiktok]“said a spokeswoman for the Ministry of Commerce at a press conference in Beijing at the end of March 2023.
“The sale or divestment of TikTok involves the export of technology and is subject to regulatory approval processes in accordance with Chinese laws and regulations.”
China introduced the Export Control Law in 2020 and the final text expanded the definition of “controlled items” from previous drafts. According to state media, the amendment ensures that the export of algorithms, source codes and similar data is subject to an approval process.
Aside from algorithms, TikTok’s key benefits include user data and product operations and management, two of the people said.
Reuters reported at the time that ByteDance, which is backed by Sequoia Capital, Susquehanna International Group, KKR & Co and General Atlantic, among others, was valued at $268 billion in December when it offered about $5 worth of shares Buy back billions of dollars from investors.