ByteDance to Retain 50% of TikTok US Profit in Trump-Brokered Deal

Restructuring TikTok's US Operations

• 🎯 Two separate entities are being created: one to house data, control content, and manage algorithms, and another for day-to-day operations.
• 💡 ByteDance will be responsible for the entity running day-to-day operations, including showing ads and e-commerce.
• 🔑 This structure allows ByteDance to retain involvement in critical revenue-generating aspects of TikTok's US business.

Profit Sharing and Licensing Fees

• 💰 ByteDance is expected to receive approximately 50% of TikTok US profit under the potential deal orchestrated by President Trump.
• ⚙️ This includes a licensing fee for making its algorithm available to the US operating entity, potentially earning 20% on incremental revenue.
• 📈 For example, with $20 billion in revenue, ByteDance could receive up to $4 billion from the algorithm licensing alone.

Rationale Behind the Profit Split

• 🧠 The profit-sharing arrangement explains the discrepancy in valuation and the surprisingly low $14 billion price tag for the sale.
• 🤝 Oracle, a likely investor, is transitioning from a revenue generator (hosting app, storing data) to a cost center, necessitating an incentive for their involvement.
• 📊 The new owners are expected to own about 80% of the US business, but ByteDance's continued operational involvement justifies their significant profit share.

Deal Dynamics and Valuation Concerns

• ⚠️ The $14 billion price tag is considered significantly undervalued by some analysts, potentially reflecting only a third of TikTok's true worth.
• 💬 The profit-sharing agreement, including hefty licensing fees and a share of remaining profits, illustrates why the valuation gap exists.
• 🇨🇳 Chinese authorities have reiterated the need for an open, fair, and non-discriminatory environment for Chinese investors amidst the ongoing negotiations.