ByteDance, they say, will have two main sources of income: a licensing fee on all TikTok US revenues for the right to use the algorithm, and a share of the profits proportional to its remaining stake.
Overall, the Beijing company is estimated to continue to receive 50% or more of the US division’s total profits after the transfer of control to its new owners.
Last week, Trump discussed the agreement by phone with Chinese leader Xi Jinping. The American side reported that an agreement in principle had been reached, but Beijing has not yet confirmed the agreement, and the final terms of the sale have not yet been determined.
Adding to the confusion, JD Vice President Vance said the deal would be worth about $14 billion, significantly less than the $35 billion to $40 billion analysts had expected.
Revenue sharing partially explains this difference in valuations. Under the current plan, TikTok US will pay ByteDance a significant licensing fee for the use of its algorithm—the key technology that makes the service so popular.
According to the source, we’re talking about approximately 20% of additional revenue, that is, revenue generated by the algorithm. For example, out of $20 billion in revenue, ByteDance could receive up to $4 billion in licensing fees alone.
Additionally, the company will take approximately 20% of the remaining revenue, based on its equity stake. The remaining profits will be divided among a consortium of American investors, expected to include Oracle Corp., Silver Lake Management, and Abu Dhabi-based MGX, as well as existing shareholders. They will ultimately own approximately 80% of TikTok’s US business.
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