The fate of TikTok in the United States hangs in the balance, with the Supreme Court poised to potentially uphold a federal ban as early as this week. This looming ban, set to take effect on January 19th, has ignited a flurry of activity, from last-minute legislative efforts to high-stakes negotiations surrounding a potential sale of the popular social media platform. The central question revolves around the complex valuation of TikTok’s U.S. operations, a figure that varies dramatically depending on several factors, most notably the inclusion or exclusion of its powerful recommendation algorithm.
The legal landscape is fraught with uncertainty. While the Supreme Court’s anticipated decision leans towards upholding the ban, several avenues remain open for TikTok to continue operating in the U.S. President Biden could extend the deadline, Congress could pass new legislation granting ByteDance, TikTok’s Chinese parent company, additional time to divest, or ByteDance could opt to sell the U.S. version of the platform to American owners. This last option, while fraught with its own complexities, has attracted the attention of several billionaires, including Frank McCourt, the former owner of the Los Angeles Dodgers, and even drawn speculative, and denied, interest from Elon Musk.
The valuation of TikTok proves to be a particularly challenging exercise. Beyond the hotly debated worth of its algorithm, the platform’s status as a division of a privately held Chinese company shrouded in financial opacity further complicates the process. TikTok’s structure as a subsidiary of shell companies registered in the Cayman Islands makes it nearly impossible to ascertain its precise U.S. revenue and profits. Moreover, the Chinese government holds a small yet influential stake in one of ByteDance’s other businesses, raising concerns about potential influence despite China’s assurances to the contrary. Any sale would ultimately require the Chinese government’s approval, adding another layer of complexity to the proceedings.
The looming threat of a temporary ban adds further pressure to the valuation puzzle. Court documents filed by TikTok and ByteDance suggest that even a month-long shutdown could significantly impact the platform’s global ad revenue, potentially diminishing its perceived value. Furthermore, a forced sale under these circumstances would likely depress the price a buyer would be willing to pay. This dynamic creates a precarious situation for ByteDance, as it attempts to navigate a complex geopolitical landscape while preserving the value of its prized asset.
Several approaches have been proposed to estimate TikTok’s worth. One centers around Frank McCourt’s $20 billion offer, which explicitly excludes the algorithm and values the platform roughly on par with competitor Snapchat. This valuation, based on a multiple of TikTok’s estimated 170 million American users, falls on the lower end of the spectrum. Another method involves applying a revenue multiple, a common practice for valuing consumer tech companies. Using estimated U.S. revenue figures and comparing TikTok’s multiple to those of competitors like Snap and Meta yields a significantly higher valuation, potentially exceeding $100 billion, assuming the algorithm is included.
The algorithm itself represents a significant, albeit difficult to quantify, portion of TikTok’s value. While some analysts believe its inclusion could push the total valuation as high as $300 billion, others remain more conservative, estimating the platform’s worth without the algorithm at between $40 billion and $55 billion. The vastly different estimates highlight the inherent challenges in valuing such a unique asset. The algorithm’s ability to capture user behavior and personalize content is widely considered a key driver of TikTok’s success, making its inclusion or exclusion a pivotal factor in any valuation exercise. The ultimate price tag for TikTok, should a sale occur, will depend heavily on the resolution of these complex factors and the often competing interests of the involved parties.
