A complex narrative surrounds TikTok, the most downloaded app of 2020. The popular video-sharing social media platform is owned by a Chinese company, ByteDance, which was valued at $180 billion at the end of 2020. Although the app was initially released in September 2016, it did not start gaining recognition until August 2018 when ByteDance acquired the popular lip-sync app, Musical.ly. The acquisition is estimated to have been valued between $800M and $1 billion. The Chinese firm then decided to close down Musical.ly and move its users to TikTok. According to Stefan Henriquez, former head of global marketing at TikTok, the reason for this shift was because the TikTok brand “better reflects the breadth of content created on our platform that extends beyond music to comedy, performance art and more.”
Known in China as Douyin, TikTok garnered even more success during the early months of the COVID-19 pandemic. The app reached 2 billion installations by April 2020 and reported 2.6 billion by the end of the year.
As TikTok attracted millions of American users to browse and share content on their platform, concerns about potential information security implications due to the app’s Chinese ownership bubbled to the surface. This eventually came to a head last summer when former President Donald Trump issued two executive orders, citing TikTok’s data collection as a national security concern. These orders barred transactions with TikTok and set forth a requirement for the sale of the US division of their business. In response, the search for a buyer led to a potential deal between Oracle and Walmart. But even with a functional plan in place, TikTok still successfully challenged the August executive orders, delaying any deal finalization until after the election in November.
As of today, the deal has effectively been put on pause while the Biden Administration reviews the severity of security concerns posed by Chinese-owned apps such as TikTok. If President Biden adopts a less aggressive approach to the app than his predecessor, it is very possible that ByteDance will continue to do business as usual without Oracle or Walmart. Should the situation present itself once more, what would happen if Oracle and Walmart manage to make a deal with TikTok and ByteDance?
Based on the details of the original deal, Oracle and Walmart would acquire a combined 20% stake in a new entity, TikTok Global, which originally planned to hold an initial public offering for the other 80% in late 2021. While four out of five members of the board of directors were set to be Americans, the circumstances surrounding whether TikTok Global would be U.S. or Chinese-owned would continue to complicate the transaction. ByteDance claims it would hold the remaining 80% stake in TikTok Global until the IPO. However, according to Oracle EVP Ken Glueck, “upon creation of TikTok Global, Oracle/Walmart will make their investment and the TikTok Global shares will be distributed to their owners, Americans will be the majority and ByteDance will have no ownership in TikTok Global.”
Regardless of whether or not a deal is ever finalized, it is impossible to ignore the phenomenon that TikTok has become. The social media giant’s presence on the world stage will likely continue to grow with or without U.S. involvement.
Author – Abigail Iaconis is an analyst at Capstone.
