TikTok Being Sold for a Song
Jonathan Vanian
At first, I was sure this was some sort of miscommunication:
President Donald Trump on Thursday signed an executive order approving a proposal that would keep TikTok alive in the U.S. in a transaction that Vice President JD Vance said values the business at $14 billion.
$14B. It's a number so comically low that it would seem more believable if it was what one entity was paying for 10% of the company. But no, everyone is reporting the same thing: $14B is the amount being paid for 100% of the new company. Well, technically they're paying less than that because of the just under 20% being retained by ByteDance, while current ByteDance investors get to roll stakes over (while also putting some new money in).
But just how small is $14B? ByteDance itself is worth north of $300B – with secondaries currently trading in the $400B range. Yes, there's more to ByteDance than TikTok, but it's a huge part of the value. And yes, this is just the US portion of the service being sold, but it's also undoubtedly the most lucrative part given the importance and usage in the American market.
ByteDance investors like General Atlantic, Susquehanna and Sequoia, are expected to contribute equity in the new TikTok U.S. entity, sources told Faber. ByteDance was reportedly valued at $330 billion last month. Analysts have previously estimated TikTok’s U.S. operations could be worth between $30 billion to $35 billion.
Even $30B to $35B feels comically low here. ByteDance's overall revenue was $155B last year and again, TikTok drives a large portion of that – and presumably most of the international sales, which were just under $40B. Again, just the US business is going to be a large portion of that, but even the most conservative estimates there think it's north of a $10B a year business right now. So these investors are paying something like a 1x multiple which is absolutely silly.
So where does $14B come from? Nobody knows. But one guess may be Snap, which is currently valued in the public markets at... $14B. But Snap famously has monetization challenges where TikTok does not. In no way should that be the comp here. And even Snap has a 2.5x revenue multiple! Other would-be comps range from 3x all the way past 10x. And those are public companies, TikTok will be a private and still fast-growing startup. It would not be crazy to value it well north of $100B.
So yeah, this is perhaps the most sweetheart of sweetheart deals. Are there risks? Of course. And I'm quite skeptical this will actually work out well. But that doesn't change the current value of the property, which is being comically discounted here.
One more thing:
“It’s owned by Americans, and very sophisticated Americans,” Trump said at the signing. “This is going to be American operated all the way.”
Ah yes, except for, you know, the Abu Dhabi-based firm MGX (great name), which will own some large slug of the 45% the new investor groups are getting. Presumably, they're going to own north of 10% of this new TikTok by themselves. I guess technically they won't be "operating" the new TikTok, but it's a sort of odd statement to make, unless the investor reporting is inaccurate. But it sure sounds like MGX has been mentioned as a major new investor in all the recent reports (perhaps swapped in for a16z who is no longer being mentioned?!). Maybe President Trump was unaware of that change, but probably not. This has all been one big gameshow.
Also, one nugget from the Lauren Hirsch, Tripp Mickle, and Emmett Lindner report on the matter for The New York Times:
MGX has been discussing the TikTok investment for months, according to two people familiar with the talks. It was one of several companies in the TikTok deal that stood to benefit from the Emiratis’ data center project. Oracle will be building a data center that will cost about $20 billion in the Emirates. Silver Lake, an investment company, has a stake in one of the partners in that project, G42, an Emirati A.I. company.
Yes, TikTok is being sold for less than the cost of a single data center. One which all of these parties are affiliated with – funny that.
M.G. Siegler
M.G. Siegler
M.G. Siegler