TikTok owner ByteDance would prefer to shut down its loss-making app rather than sell it if the Chinese company exhausts all legal options to fight legislation to ban the platform from app stores in the U.S., four sources said.
The algorithms TikTok relies on for its operations are deemed core to ByteDance's overall operations, which would make a sale of the app with algorithms highly unlikely, said the sources close to the parent.
TikTok accounts for a small share of ByteDance's total revenues and daily active users, so the parent would rather have the app shut down in the U.S. in a worst case scenario than sell it to a potential American buyer, they said.
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, mainly from its other apps such as Douyin, the Chinese equivalent of TikTok, separate sources have said.
The U.S. accounted for about 25% of TikTok's overall revenues last year, said a separate source with direct knowledge.
ByteDance's 2023 revenues rose to nearly $120 billion in 2023 from $80 billion in 2022, said two of the four sources. TikTok's daily active users in the U.S. also make up just about 5% of ByteDance's DAUs worldwide, said one of the sources.
TikTok shares the same core algorithms with ByteDance domestic apps like short video platform Douyin, three of the sources said. Its algorithms are considered better than ByteDance rivals such as Tencent and Xiaohongshu, said one of them.
It would be impossible to divest TikTok with its algorithms as their intellectual property licence is registered under ByteDance in China and thus difficult to disentangle from the parent company, said the sources.
Moreover, separating the algorithms from TikTok's U.S. assets would be an extremely complicated procedure and ByteDance is unlikely to consider that option, the sources added.
China indicated it would be likely to reject a forced divestment of the TikTok app during a U.S. congressional hearing in March last year.
"China will firmly oppose it (the forced sale of TikTok)," said a spokeswoman for the Ministry of Commerce at a news conference in Beijing in late March 2023.
"The sale or divestiture of TikTok involves technology export and must go through administrative licensing procedures in accordance with Chinese laws and regulations."
China in 2020 unveiled the Export Control Law and the final text extended the definition of "controlled items" from prior drafts. According to state media, the amendment ensures that the exports of algorithms, source codes and similar data are subject to an approval process.
