A ban on TikTok in the US would create a clear hole in social media. For ByteDance, TikTok's Chinese parent company, it could also create a clear hole in its business.
The ban, signed into federal law last year and upheld by the Supreme Court on Friday, is a major blow to ByteDance, the world's second-most valuable private technology company, valued at $300 billion. . Analysts estimate that at least a significant portion of the company's value is tied to its success in the United States, where TikTok has 170 million monthly users.
TikTok has a larger audience outside the U.S., with 1.2 billion to 1.8 billion monthly users worldwide, with its biggest markets including Indonesia and Brazil, but the app's most valuable Some users are in the United States, analysts said. TikTok makes money through ads and by selling products through the TikTok Shop, which pays influencers a commission for selling beauty products, gadgets, clothing, and other items. Social networks typically have the highest “revenue per user” in the United States.
“The U.S. market is by far the most profitable market of any market,” said Benchmark Company analyst Mark Zgutovich. He said TikTok generated an estimated $10 billion in revenue in the U.S. last year, with worldwide revenue estimated at $20 billion to $26 billion.
That's the impact ByteDance now has to deal with. The scale of the looming business challenges is enormous. Facebook, Twitter, and other social media were blocked in China about 15 years ago, but that was before many of those apps accumulated large numbers of users in the country. Perhaps the closest analogy is what TikTok experienced in India in 2020, when the Indian government banned the app. TikTok lost 200 million users there, but has since gained users elsewhere.
It's unclear whether TikTok will still be able to escape a U.S. ban. President-elect Donald J. Trump is considering an executive order that would allow TikTok to continue operating until a new owner is found. He could also direct the Justice Department not to enforce the law or delay enforcement for a period of time.
TikTok did not respond to a request for comment. The company said in court documents that a ban would have a negative impact on its U.S. business. “Many current and future users and creators, both domestic and international, have migrated to competing platforms, and many will never return, even if the ban is later lifted,” the company wrote.
ByteDance, which operates a series of apps in China and abroad, remains a business giant even if the U.S. ban on TikTok goes into effect on Sunday, when the law takes effect. The company derives the lion's share of its revenue from another product, Chinese social media app Douyin. Including TikTok, ByteDance generated about $73 billion in revenue in the first half of 2024, according to people familiar with the company. The Information earlier reported ByteDance's earnings.
ByteDance was founded in 2012 by entrepreneur Zhang Yiming and others, and is backed by U.S. investors including Susquehanna Capital, which owns about 15% of the company. General Atlantic Corp., Kochu Management Corp., BlackRock Inc. and Hongshan Corp., a company formerly known as Sequoia Capital China, also have investments in ByteDance.
TikTok's ban in the US will likely help its US competitors. Analysts and advertisers say 85% of TikTok's U.S. revenue is expected to soon go to Meta's Instagram and Google's YouTube. Both offer video services and programs that share commissions from e-commerce sales and advertising with popular creators. When India shut down TikTok in 2020, Instagram and YouTube quickly filled the void.
“It's very easy to move the money you're spending on TikTok to Meta and Google,” Zgutovic said. The rest could be split among smaller platforms like Snap and Pinterest, he added.
TikTok's users and influencers could make similar changes, even if other platforms don't offer the same algorithmic personalization that made TikTok popular. While Instagram's Reels tend to reward creators with large numbers of followers, TikTok's algorithm allows even relatively unknown creators to find an audience. YouTube Shorts also focuses on famous creators.
“There are other platforms that we don't necessarily focus on, but we'll probably put more effort into them,” said Kristin Patrick, chief marketing officer at fashion company Marc Jacobs. She pointed to Instagram Reels, YouTube Shorts, and to a lesser extent Pinterest. She added that brands are “preparing for the worst” on TikTok.
A survey of TikTok users conducted late last year by investment bank TD Cowen found that more than half of users said they would reallocate time spent on TikTok to YouTube or Instagram if it were banned.
TD Cowen analyst John Blackledge said people who were spending hours a day on TikTok “are not going to just leave TikTok and replace that time with reading a book or something.” said. “They're going to go to the platform. They're going to find content.”
TikTok employees and executives left the company ahead of the ban. TikTok will have an estimated 17,000 people working in the U.S. at the end of 2024, according to Live Data Technologies, which tracks employment and career changes. But with the ban looming, the company's sales soared 38% in the second half of the year compared to 2023.
Several TikTok executives recently left the company, including TikTok's head of North American ad sales and general manager of its U.S. agency business. Sandy Hawkins, TikTok's head of U.S. e-commerce, is leaving the company at the end of 2023 to take a break from the company's rapid pace, she said. During the three-and-a-half years she spent with the company, there were repeated threats of being banned from TikTok, she recalled.
“Every time there was a news cycle, we were telling our team to focus on what we can control,” Hawkins said.
Speculation has been swirling in recent days that investors might make a last-ditch effort to buy TikTok and save it from banning. The company denied reports of deal talks and said the Chinese government would prohibit the sale.
The rumors and confusion are reminiscent of 2020, when the first Trump administration issued an executive order banning the app and then tried to engineer a sale of the company to a U.S. company. A cloud computing and e-commerce deal between TikTok, Walmart and Oracle, promoted by Trump, ultimately failed to separate TikTok from its parent company.
Sapna Maheshwari and Adam Liptak contributed reporting.
