The recent executive order signed by President Donald Trump, extending the timeline for a potential ban on TikTok, signifies a complex pivot in the ongoing U.S. scrutiny of the Chinese-owned social media platform. Rather than an outright prohibition, the order grants a 120-day reprieve, allowing for the intricate negotiation and structuring of a deal that could see a U.S.-based entity operate the app while retaining its core Chinese-developed algorithm. This approach aims to address national security concerns by shifting operational control, while simultaneously enabling American investors to participate in the platform’s valuation and ByteDance to secure continued revenue streams.
This strategic delay is designed to facilitate a divestiture plan orchestrated by key American investors, including Larry Ellison and Silver Lake. The proposed structure involves the creation of a joint venture, ostensibly an “American TikTok,” to manage the platform’s operations within the United States. Crucially, this U.S. entity is intended to operate independently of ByteDance’s direct control. However, the underlying recommendation system, the algorithm that drives user engagement and content delivery, is slated to remain Chinese-developed. U.S. officials have previously expressed significant apprehension regarding the potential national security risks associated with this algorithm.
The White House has emphasized that under the proposed framework, the operation of the algorithm, source code, and content moderation decisions will be transferred to the new U.S. joint venture. Furthermore, the administration states that recommendation models utilizing American user data will undergo retraining and be monitored by “trusted security partners.” Notably absent from these statements is any indication that a new algorithm will be developed from scratch. This suggests a strategy of layering U.S. oversight onto an existing Chinese technological foundation, the depth and efficacy of which remain subjects of intense scrutiny. Questions persist regarding the extent to which U.S. partners can fully audit the code and how updates to the algorithm by ByteDance will be managed within the U.S. context.
While U.S. user data will be housed in Oracle’s cloud infrastructure, a practice initiated in 2022, the fundamental issue remains one of control. The current arrangement appears to be a leasing of control, where ByteDance retains ownership of its algorithm and profits from its use by the U.S. entity. Reports indicate that the joint venture will license the technology, with ByteDance set to receive a substantial percentage of revenue and profits, and maintain a minority equity stake in the U.S. business. This ongoing financial connection is a critical element of the agreement, allowing ByteDance to monetize its technology without relinquishing its core intellectual property.
The valuation of this U.S. TikTok operation has been reported at $14 billion, a figure considerably lower than earlier Wall Street projections that ranged between $35 billion and $50 billion. This lower valuation is likely influenced by ByteDance’s continued involvement through revenue-sharing and licensing agreements, effectively preserving the core value of its algorithmic engine. The joint venture’s ownership structure will see significant stakes held by Larry Ellison’s Oracle, Silver Lake, and the Abu Dhabi-based MGX fund, controlling 45%. An additional 5% is designated for a variable group of investors, with President Trump mentioning potential participants such as Rupert Murdoch and Michael Dell.
The prospect of a future Initial Public Offering (IPO) for the U.S. TikTok entity is already a topic of discussion. Such a listing could potentially exceed the current $14 billion valuation, given the platform’s extensive user base, which rivals that of established companies like Snap. For ByteDance, successfully navigating this U.S. regulatory challenge could also pave the way for revisiting its own IPO plans, which were previously withdrawn in 2021 due to regulatory concerns in China. By effectively outsourcing the operational and regulatory complexities in the U.S. market, ByteDance may find itself in a stronger position to pursue public market opportunities.
Sophia Patel brings deep expertise in portfolio management and risk assessment. With a Master’s in Finance, she writes practical guides and in-depth analyses to help investors build and protect their wealth.