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The parent company of TikTok has offered US employees the chance to sell shares they might hold in ByteDance, a privately owned company, which could have a knock-on effect on any eventual sale of the social media app.
In January, a brief TikTok ban made headlines, while Donald Trump started his presidency by suggesting the US could buy or part-buy the app, which is currently Chinese-owned.
At that time, suggestions of a completed sale within a month were mentioned with Frank McCourt one noted potential buyer, as he looked at the possibility of buying TikTok without its algorithm through his Project Liberty initiative.
One hurdle to overcome for that or any other bid, however, is the valuation of TikTok, given it is owned by a private company, which are notoriously difficult and inconsistent to place figures on.
ByteDance have reportedly offered $189.90 per share, say Reuters, which is noted as an increase of 11 per cent on a buyback of a year ago. That would value ByteDance at $350bn (£272bn) based on previous valuation methods at different share buyback price points, but with it being a private company there is no gold standard for fixing valuations.
And, on a more specific note, it provides no guidance anyway on what the company might ask in a sale of TikTok – which in January Forbes offered four different guide prices for, ranging from McCourt’s $20bn (£16.4bn) bid up to $300bn (£233bn) including the algorithm.
Reddit co-founder Alexis Ohanian is the latest name to have joined McCourt’s attempt to buy the app, saying on X he wanted to give users ownership over their data.
More than 170 million Americans use the social media app, with Trump enforcing a 75-day delay over the ban and asking vice president JD Vance to oversee the process of seeing an American, or American-owned conglomerate, buying it – which means overcoming the issue of valuing a privately owned company.
The Financial Conduct Authority (FCA) this week released a report highlighting both the difficulty of doing that and of their findings to improve the consistency of the process, which included improvements when it came to revaluing businesses and documentation of potential conflicts in valuations regarding clients or potential investors.
Fund managers aberdeen responded to those findings by noting the importance in remembering “there is a difference between price and value” and pointing out that given the huge variance in complexity with different businesses, the process of placing a valuation on one alone can run into the hundreds of thousands of pounds.
“There is no single standard for how to value a private market asset – creating inconsistencies – and we would not be surprised to see the same asset valued differently in two different portfolios,” said Nalaka De Silva, aberdeen’s head of private market solutions.
To ascertain how ByteDance’s latest share buyback therefore might impact a sale price of TikTok, The Indpendent spoke further to Mr De Silva about hurdles still to overcome and how one part of a business can be valued in isolation.
“New companies with high growth business models are typically the hardest to value, particularly outside the US. China’s approach to western tech companies, and the US’s position vice versa, is evolving,” he told The Independent.
“Given the level of disclosures and regulatory approvals to trade in China vs internationally, it is difficult work out what the overall growth path looks like, but TikTok has been very successful in monetising engagement with users from music, product sales and drop shipping.
“ByteDance has multiple business models from short form video content creation, news, e-commerce, gaming, AI and cloud data business – all of these are hot segments of the market at present.
“Valuation will come from the monetisation paths in each of these business lines: revenue from advertising and sales of different services.
“If we look at listed companies that have similar business lines we can try and compare them to parts of Amazon and Meta, which suggests the market is pricing strong growth in earnings from these high value segments, therefore these valuations may not seem unreasonable.”
In a cautionary note, though, and echoing some thoughts on the wider public stock market at present, Mr De Silva noted there remained a “question as to whether valuations the US tech sectors are stretched” – and that could not only impact on TikTok’s price to buy it in the first place, but on potential returns further down the line.
