The algorithms upon which TikTok relies for its operations are considered fundamental to ByteDance's overall operations, making the sale of the app with its algorithms highly improbable, the sources close to the parent company stated.
They mentioned that TikTok represents a minor portion of ByteDance's total revenues and daily active users, leading the parent company to favour shutting down the app in the US in a worst-case scenario over selling it to a potential American buyer.
A shutdown would have a limited impact on ByteDance's business while allowing the company to retain its core algorithm, the sources, who requested anonymity as they were not authorised to speak to the media, added.
The company stated late on Thursday in an announcement on Toutiao, a media platform it owns, that it had no intention of selling TikTok. This was in response to an article by The Information suggesting ByteDance is considering options for selling TikTok's US operations without the algorithm recommending videos to TikTok users.
In response to a request for comment from Reuters, a TikTok spokesperson referred to ByteDance's statement on Toutiao.
On Wednesday, TikTok's CEO, Shou Zi Chew, expressed that the social media company anticipates winning a legal challenge to obstruct legislation signed into law by President Joe Biden, which he claimed would ban its popular short video app used by 170 million Americans.
The bill, overwhelmingly passed by the US Senate on Tuesday, is motivated by widespread concerns among US lawmakers that China could access Americans' data or utilise the app for surveillance. Of course the fact that it competes with US companies like Facebook and X is nothing to do with it.
Biden's signature sets a January 19 deadline for a sale – one day before his term expires – but he could extend the deadline by three months if he determines that privately owned ByteDance is progressing.
ByteDance does not publicly reveal its financial performance or the financial specifics of any of its units. The company continues to earn most of its revenue in China, primarily from its other applications such as Douyin, the Chinese equivalent of TikTok, separate sources have indicated.
The US contributed to approximately 25 per cent of TikTok's overall revenues last year, a separate source with direct knowledge stated.
Two of the four sources said that ByteDance's revenues increased to nearly $120 billion (€101.68 billion) in 2023 from $80 billion (€67.29 billion) in 2022. TikTok's daily active users in the US also constitute about 5 per cent of ByteDance's DAUs globally, one of the sources mentioned.
As three of the sources stated, TikTok shares the same core algorithms with ByteDance's domestic applications, such as the short video platform Douyin. One of them said that its algorithms are considered superior to those of ByteDance's rivals such as Tencent and Xiaohongshu.
The sources explained that it would be impossible to divest TikTok with its algorithms as their intellectual property licence is registered under ByteDance in China, thus making it difficult to separate from the parent company.
Furthermore, detaching the algorithms from TikTok's US assets would be an extremely complicated procedure, and ByteDance is unlikely to consider that option, the sources added.
ByteDance also would not agree to sell one of its most valuable assets – its "secret sauce" – to competitors, the four sources said, referring to the TikTok algorithm.
In 2020, the Trump administration attempted to ban TikTok and Chinese-owned WeChat, but the court blocked it. The short-form video app has since faced partial and attempted bans in the US and other countries.
China indicated it would likely reject a forced divestment of the TikTok app during a US congressional hearing in March last year.
"China will firmly oppose it (the forced sale of TikTok)," a spokeswoman for the Ministry of Commerce stated at a news conference in Beijing in late March 2023.
"The sale or divestiture of TikTok involves technology export and must go through administrative licensing procedures under Chinese laws and regulations."
In 2020, China unveiled the Export Control Law, and the final text extended the definition of "controlled items" from prior drafts. According to state media, the amendment ensures that the exports of algorithms, source codes, and similar data are subject to an approval process.
Excluding algorithms, TikTok's primary assets include user data and product operations and management, two of the people said.