Forbes - Here’s How Much Billionaires Might Pay For TikTok In The U.S.
The US Supreme Court may soon rule on a potential TikTok ban, which could significantly impact the app's valuation. The ban, set to take effect soon, could be delayed if President Biden extends the deadline or if Congress passes a new bill. TikTok's valuation is complex due to its Chinese ownership and opaque financial structure. A forced sale could reduce its global ad revenue by 29% in a month. Analysts suggest different valuation methods: Frank McCourt's $20 billion offer without the algorithm, a $132 billion valuation based on revenue multiples, and a $300 billion valuation considering the algorithm's value. Without the algorithm, estimates drop to $40-$55 billion. These valuations highlight the challenges in assessing TikTok's worth, especially with potential infrastructure costs and revenue uncertainties.
Key Points:
- TikTok's valuation is complicated by its Chinese ownership and financial opacity.
- A potential US ban could decrease TikTok's global ad revenue by 29%.
- Frank McCourt's group offered $20 billion for TikTok without its algorithm.
- Valuations range from $40 billion to $300 billion, depending on the inclusion of the algorithm.
- Analysts use revenue multiples and user base to estimate TikTok's worth.
Details:
1. 📜 TikTok's Potential US Ban
- The Supreme Court is deliberating a potential ban on TikTok in the US, with a decision potentially forthcoming by Thursday morning.
- The justices have shown indications that they may uphold the federal law in question, suggesting a strong possibility of enforcing the ban.
- If the Supreme Court upholds the law, the ban will take effect on Sunday, January 19th, coinciding with the day before President Trump's inauguration.
- The decision to ban TikTok stems from national security concerns, specifically regarding data privacy and potential foreign influence.
- This move could significantly impact TikTok's user base in the US, which comprises millions of active users, and might set a precedent for future technology and social media regulations.
2. 💸 Valuation Challenges and Ownership Issues
- The U.S. government has extended the deadline for TikTok's Chinese parent company, ByteDance, to divest its U.S. operations by an additional 270 days, highlighting ongoing geopolitical tensions.
- A new bill introduced in Congress could lead to the forced sale of TikTok's U.S. operations to American owners, underlining the strategic importance of data security and national interests.
- Determining TikTok's valuation is complex due to its prized algorithm, which is central to its user engagement and competitive advantage, and its status as a division of a private Chinese company, complicating transparent financial assessments.
3. 💰 Potential Buyers and Offers
- TikTok's financial structure is complex due to its registration under Cayman Islands shell companies, leading to challenges in financial assessment.
- A potential one-month shutdown of TikTok could lead to a significant 29% decrease in global ad revenue for the year, highlighting the financial vulnerability during regulatory challenges.
- A forced sale during a temporary ban could critically impact TikTok's valuation, influencing buyer interest and offer amounts.
- If TikTok were to be spun off from its parent company, it might require extensive new infrastructure, complicating the separation process and potentially affecting the sale price.
- An investor group led by Frank McCort has made a notable $20 billion offer to acquire TikTok's US operations, excluding its algorithm, which highlights the significant strategic interest and valuation challenges.
- The $20 billion offer equates to Snapchat's enterprise value, approximately valuing each TikTok user at $120, demonstrating the high stakes and competitive nature of the acquisition landscape.
4. 🔍 Valuation Methods and Revenue Estimates
- TikTok's user base in the US is 170 million, positioning it between Snapchat and Meta in comparable ratios.
- TikTok's revenue model includes three main streams: advertising, live streaming videos, and e-commerce, with the latter two accounting for 83% of its 2023 revenue in Singapore.
- For 2023, TikTok's global revenue was around $13 billion, excluding undisclosed US sales, while US revenue is estimated at $16 billion, according to Financial Times reports.
- ByteDance's revenue outside of China grew by at least 40% in the first half of 2024, suggesting potential US sales of $22 billion for the entire year.
- Analysts suggest using an Enterprise Value to revenue multiple of six times for valuation, which is a midpoint between Snap's 3.5x and Meta's 8x multiples.
- Applying this 6x multiple to the projected $22 billion revenue for 2024 implies a valuation of approximately $132 billion.
5. 🏆 The Value of TikTok's Algorithm
- TikTok's algorithm, developed by ByteDance, utilizes advanced machine learning to deliver highly personalized content to users, significantly enhancing user engagement.
- The algorithm is unique in its effectiveness at predicting and capturing user behavior, leading to substantial user retention and time spent on the platform.
- Analysts, including Wedbush's Dan Ives, consider the algorithm to be a critical asset, potentially contributing to TikTok's valuation of $300 billion, driven by its advertising revenue potential.
- Dan Ives highlights the significance of TikTok's algorithm in maintaining engagement among its 200 million highly active U.S. users, underscoring its value not just in technology but in economic terms.
6. 📉 TikTok's Worth Without the Algorithm
- TikTok's US revenues are estimated to be closer to $13 billion, which is lower than previously reported by Financial Times.
- The valuation of TikTok without its algorithm is estimated to be around $55 billion by GTZ.
- Wedbush's IES values TikTok between $40 billion to $50 billion without the algorithm.
- The proprietary algorithm is considered a significant component of TikTok's overall value, indicating that its absence impacts the valuation considerably.
- Understanding these valuations is crucial for stakeholders to assess TikTok's strategic positioning and potential market moves.