TikTok’s Valuation Estimates Vary from $20 Billion to Over $100 Billion

Determining the value of TikTok’s U.S. operations presents a complex challenge, given the unprecedented nature of the sale and various factors at play. Potential buyers and stakeholders are faced with significant uncertainty and a wide range of estimates.

One suitor has proposed a starting price of $20 billion for TikTok’s U.S. operations, indicating the perceived value of the platform in the American market. However, ByteDance, TikTok’s parent company, has previously regarded the app’s global operations as a substantial portion of its overall value, with estimates surpassing $100 billion. These figures underscore the significant value placed on TikTok’s widespread popularity and user engagement.

Navigating the valuation process will require careful consideration of various factors, including TikTok’s user base, revenue potential, regulatory challenges, and potential synergies with acquiring companies. Additionally, the uncertainty surrounding the regulatory environment and potential changes in user behavior further complicate the valuation process.As stakeholders engage in negotiations and due diligence, they will need to carefully assess the unique dynamics of TikTok’s business and market position to arrive at a mutually agreeable valuation.

A big factor is what would come with the sale. Would it be the whole international business and its more than one billion users, or just the U.S. operations with 170 million users? Would TikTok’s secret sauce—the addictive video-personalization algorithm that China has signaled it won’t allow to be sold—be included?Another question hangs over how attractive TikTok’s U.S. business is, as its once dizzying growth slows and Instagram rises as a rival.

The timeline for settling on a sale price for TikTok’s U.S. operations is uncertain and could extend over several months or longer. President Biden’s signing of the legislation, which gives ByteDance up to a year to find a suitable buyer or face a U.S. ban, sets the stage for a potentially lengthy negotiation process. TikTok is reportedly preparing to challenge the legislation on free-speech grounds, adding further complexity to the situation.

One complicating factor is the ownership structure of ByteDance, particularly the role of its founder, Zhang Yiming. While Zhang owns 20% of ByteDance, his larger voting rights, facilitated by super shares, grant him significant influence over the company’s decisions. Additionally, global institutional investors, including Carlyle Group, General Atlantic, and Susquehanna International Group, collectively own approximately 60% of ByteDance, while the remaining 20% is held by company employees.The involvement and interests of these various stakeholders, along with regulatory considerations, legal challenges, and potential geopolitical factors, will all shape the negotiation process and ultimately determine the outcome of any potential sale of TikTok’s U.S. operations.

Public declarations of interest in buying TikTok have been relatively limited thus far. Kevin O’Leary, chairman of O’Shares ETFs and a personality on the TV show “Shark Tank,” has stated his intention to put together a bid valuing TikTok between $20 billion and $30 billion, excluding the algorithm. Former Treasury Secretary Steven Mnuchin has also indicated that he is forming a group to potentially acquire TikTok, while Bobby Kotick, the former CEO of videogame publisher Activision, has reportedly approached ByteDance’s founder, Zhang Yiming.If Zhang and other shareholders agree to sell TikTok, ByteDance may seek a starting sales price well above $100 billion. Executives at ByteDance previously suggested that TikTok could be valued at up to half of ByteDance’s overall valuation. However, ByteDance has declined to comment on its specific view of TikTok’s valuation.

Determining the final sale price will depend on various factors, including the level of interest from potential buyers, negotiations between ByteDance and interested parties, regulatory considerations, and the perceived value of TikTok’s assets, including its user base, technology, and market position.ByteDance offered $160 a share to repurchase shares from its shareholders in December, according to sources familiar with the matter. This offer implied a valuation of $268 billion for the company.

The valuation of ByteDance and TikTok remains a topic of debate among investors and industry experts. While ByteDance offered $160 per share to repurchase shares from its shareholders, implying a valuation of $268 billion, some private equity markets priced ByteDance at less than $130 per share, valuing the company at less than $215 billion. Regarding TikTok specifically, some investment banks and investors value it at five times its advertising and livestreaming revenue, which was about $22 billion last year, suggesting a valuation of $110 billion.

The valuation process is further complicated by uncertainties surrounding the potential sale, such as whether ByteDance would sell all of TikTok or just its U.S. operations, and whether the sale would include TikTok’s algorithm. The algorithm is considered crucial to TikTok’s success, but its ownership and control could be subject to regulatory scrutiny, particularly given Chinese export-control rules. As a result, potential buyers might need to bid for TikTok without the algorithm and develop their own system, which could affect the final sale price.