If ByteDance, the business that owns TikTok, uses all of its legal options to oppose legislation that would remove the platform from US app stores, the Chinese company would prefer to shut down its loss-making app than sell it, according to four sources cited by Reuters.

According to people close to the parent company, TikTok’s algorithms are considered essential to ByteDance’s entire operations, which makes it extremely unlikely that the app with algorithms will be sold. This information was revealed on Thursday.

In the worst-case scenario, the parent company of ByteDance would prefer to have the app shut down in the US rather than sell it to a potential American buyer because TikTok only contributes a small portion of ByteDance’s daily active users and overall earnings.

The sources, who wished to remain anonymous because they were not authorized to speak to the media, claimed that a shutdown would have little effect on ByteDance’s operations and that the company would not have to give up its basic algorithm.

ByteDance chose not to respond.

In response to an article published by tech platform The Information stating that ByteDance is investigating options for selling TikTok’s US business without the algorithm that suggests videos to TikTok users, the company announced late on Thursday that it had no plans to sell the app. The statement was posted on Toutiao, a media platform that it owns.

A TikTok representative cited ByteDance’s Toutiao statement in response to Reuters’ request for comment.

CEO of TikTok Shou Zi Chew stated on Wednesday that the social media business anticipates winning a court battle to overturn a bill that President Joe Biden signed into law, which he claimed would outlaw the company’s well-known short video app, which is used by 170 million people in the United States.

The US Senate easily approved the bill on Tuesday, largely due to legislators’ broad concerns that China would use the app for spying on Americans or obtain their personal information.

One day before his tenure is about to end, on January 19, Biden’s signing sets a deadline for a sale. However, if he finds that privately held ByteDance is moving forward, he may decide to extend the date by an additional three months.

ByteDance does not make available to the general public the financial information of any of its units or its own performance. According to multiple sources, the company still generates the majority of its revenue in China, mostly from its other apps like Douyin, which is TikTok’s Chinese version.

About 25% of TikTok’s total earnings from the previous year came from the US, according to a different source with firsthand knowledge.

According to two of the four sources, ByteDance’s 2023 revenues increased from $80 billion in 2022 to approximately $120 billion. According to one of the reports, the daily active users of TikTok in the US account for only 5% of ByteDance’s DAUs globally.

Algorithms not for sale

According to three of the sources, TikTok and domestic ByteDance products like the short video platform Douyin use the same underlying algorithms. One of them stated that its algorithms are thought to be superior than those of ByteDance’s competitors, Tencent and Xiaohongshu.

According to the source, TikTok’s intellectual property license is registered under ByteDance in China, making it challenging to separate from the parent company. As a result, it would be impossible to dispose the company with its algorithms.

According to the four sources, ByteDance would not consent to sell its “secret source,” which is the TikTok algorithm, to competitors, despite the fact that it is one of its most valuable assets.

The Trump administration attempted to outlaw Chinese-owned WeChat and TikTok in 2020, but the courts stopped them. Since then, the United States and other nations have attempted and partially banned the short-form video app.

A mandatory TikTok app divestment was hinted at by China during a US congressional hearing on March of last year, and the country most likely rejected the proposal.
At a news conference in Beijing at the end of March 2023, a representative from the Ministry of Commerce declared, “China will firmly oppose it [the forced sale of Tiktok].”

“Technology export is involved in the sale or divestiture of TikTok, and administrative licensing procedures must be completed in compliance with Chinese laws and regulations.”

The Export Control Law, which China unveiled in 2020, expanded the definition of “controlled items” from earlier drafts. The amendment makes sure that exports of algorithms, source codes, and comparable data are subject to permission procedures, according to state media.

According to two of the persons, TikTok’s primary assets, excluding algorithms, are user data and product operations and management.

In December, ByteDance, supported by Sequoia Capital, Susquehanna International Group, KKR & Co, and General Atlantic, among others, offered to buy back about $5 billion worth of investors’ shares, valuing the company at $268 billion, according to a report from Reuters at the time.