The Valuation of TikTok by US Investors: Users and Brand 10%, Algorithm 90%

Investors are discounting TikTok by more than 90% as the Chinese owners are not expected to release the algorithms which do the magic in the social media platform, if the fights with the US government lead to a sale. (Recently, the US House of Representatives, a part of the US Congress voted for TikTok to discontinue from its Asian parent or be banned in the United States. The US Senate is yet to vote. President Biden has already noted that he will sign the bill into law if it makes it to his desk.)

The House voted overwhelmingly Wednesday to approve a bipartisan bill that would require ByteDance, the parent company of TikTok, to sell the social media app or face a ban on all U.S. devices. The vote was 352-65. The legislation’s fate is unclear in the Senate.

Investor Kevin O’Leary and consortium plan to put together an acquisition package for TikTok that is within $20 billion – $30 billion even though the short video giant was last valued at $220 billion in 2023. This consortium posits that they do not expect the company selling the core codes.

Largely, the implication is that a new buyer will have to recreate the algorithm, and hope it works to keep those users engaged and happy. As we look at that, this does mean that the TikTok brand and the 170 million US users are worth just about 10% while the algorithm commands 90%. Interesting IP-heavy model there on the valuation.

If a sale is to happen, it will likely be in the range of 40%-60% from 10%-90%, if and only if the code is even sellable!

Recall that the Chinese Government has already noted that ByteDance, the owner of TikTok, would be restricted from exporting the code, meaning that it cannot sell even if it wants.

— LinkedIn Summary

Investor and “Shark Tank” star Kevin O’Leary says he’s assembling a syndicate to try and buy TikTok for a starting bid of $20 billion to $30 billion — just 10% of the app’s last valuation. The reasoning behind the low price? Any deal would likely not include the algorithms that are key to the app’s success, O’Leary tells CNBC; the buyer would have to recreate them with U.S. rather than Chinese code. Former U.S. Treasury Secretary Steven Mnuchin may also make a bid for what O’Leary calls “the largest entertainment and business network in America.”

• The U.S. House of Representatives voted last week to ban TikTok unless its Chinese owner, ByteDance, sells off the platform.
• Any potential purchase would need the sign-off of the White House, due to its national security implications, per CNBC.

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