Valuing TikTok is no easy feat, given the complexities of its structure and the challenges it faces amid regulatory scrutiny. At the heart of the issue is TikTok’s powerful recommendation engine, which drives user engagement, alongside its status as a subsidiary of China-based ByteDance. As U.S. authorities weigh the potential for a TikTok ban, the price tag for buying the U.S. operations of the social media giant remains uncertain. Here’s an exploration of different scenarios based on insights from several analysts and investors.
Key Scenarios For TikTok’s Valuation
1. Frank McCourt’s $20 Billion Offer
Real estate mogul Frank McCourt, former owner of the L.A. Dodgers, is leading a bid for TikTok’s U.S. operations through his Project Liberty initiative. McCourt values the U.S. business at $20 billion, a figure that excludes TikTok’s famous recommendation engine. This figure is comparable to the enterprise value of Snapchat. The basis for this valuation comes from a per-user calculation: $20 billion roughly equals $120 per TikTok’s 170 million U.S. users, which sits between the valuation multiples of Snapchat and Meta.
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McCourt’s group is making the offer in partnership with Guggenheim Securities and law firm Kirkland & Ellis, with additional support from a variety of investors, including Shark Tank’s Kevin O’Leary. However, ByteDance has maintained that TikTok is not for sale.
2. Market-Driven Valuation
A more common method of valuing a consumer tech company like TikTok involves applying a multiple of its revenue. Analysts have estimated that TikTok’s U.S. revenue in 2023 was around $16 billion, with projections to reach $22 billion by 2024. Using an enterprise value-to-revenue multiple of six times (a figure between the multiples for Snap and Meta), analysts arrive at a rough valuation of $132 billion, which includes TikTok’s powerful algorithm.
3. The $300 Billion Golden Algorithm
TikTok’s algorithm is a central asset in its appeal, fueling its ability to generate personalized content that captivates users. Though ByteDance is unlikely to sell the algorithm separately, some analysts, like Wedbush’s Dan Ives, believe it could add immense value. Ives suggests TikTok could be worth $300 billion if the algorithm is included, primarily due to the advertising revenue potential from TikTok’s highly engaged U.S. user base.
4. A Bare-Bones Estimate
On the more conservative side, some analysts suggest TikTok’s U.S. operations could be worth far less without the algorithm. Benchmark’s Mark Zgutowicz estimates the business could be worth around $55 billion, while Ives believes the value could range from $40 billion to $50 billion without the recommendation engine.
Challenges In Valuing TikTok
The difficulty in valuing TikTok stems from several factors. For one, it operates under a complicated corporate structure that includes shell companies registered in the Cayman Islands, making its financials hard to assess. TikTok’s revenue, particularly from its U.S. operations, is not publicly disclosed, adding another layer of uncertainty. Further complicating matters, the Chinese government has a minority stake in ByteDance, raising concerns over potential influence, even though China insists its role is limited to operations outside the U.S. Additionally, any potential sale of TikTok would require approval from the Chinese government.
Finally, a forced sale could influence the sale price, particularly if the U.S. government enforces a shutdown during the sales process. A temporary ban could lead to a sharp drop in TikTok’s global advertising revenue, with estimates suggesting a 29% decrease.
In the end, as the U.S. government moves closer to a decision on TikTok’s future, the value of the app’s U.S. business remains in flux. Whether or not TikTok is ultimately sold, it will continue to be a critical piece of the global tech puzzle.
