Last month, President Donald Trump issued an executive order to ban the popular short video app TikTok in the U.S., claiming its Beijing-based parent company posed a threat to national security. The order forced ByteDance to negotiate a potential sale of TikTok's U.S. business to Microsoft (MSFT 1.65%) or Oracle (ORCL 0.49%).
However, ByteDance recently ended its talks with Microsoft and agreed to partner with Oracle and Walmart (WMT -1.75%) instead. President Trump has seemingly given the deal his "blessing," but the details have yet to be finalized.
Here are the five key things we know so far about this deal.
Image source: Getty Images.
1. The formation of TikTok Global
In a joint statement, Oracle and Walmart announced the creation of a new company, TikTok Global, an independent company headquartered in the U.S. Its five-person board would have four Americans.
Oracle and Walmart will own 20% of TikTok Global, with respective stakes of 12.5% and 7.5%, and the data of TikTok's U.S. users will be stored in Oracle's cloud servers. The two companies also announced that TikTok Global will be spun off in an IPO in less than 12 months.
As a stand-alone company, TikTok Global could be valued at up to $60 billion. By comparison, ByteDance was valued at $110 billion after its last funding round.
Oracle and Walmart claim TikTok Global will be entirely owned by American investors, and ByteDance will no longer own a stake. But in a separate announcement in Chinese, ByteDance claimed it will retain an 80% stake until the IPO -- implying that Oracle, Walmart, and other American investors might need to pay a hefty post-IPO premium to buy out its stake.
2. 100 million U.S. users
TikTok's total number of monthly active users (MAUs) in the U.S. surpassed 100 million last month, up from just 11 million at the beginning of 2018. That represents roughly 14.5% of its 689 million global MAUs.
That audience includes its users within China, which use TikTok's domestic counterpart Douyin. TikTok and Douyin are nearly identical, but the former stores its data on overseas servers and the latter stores its data within China.
ByteDance claims the gap between the two apps prevents the Chinese government from accessing the personal data of its overseas users, but critics claim the government can still order ByteDance to pull that data from its overseas servers.
3. Creating jobs and generating tax revenue
Oracle and Walmart claim the creation of TikTok Global will create over 25,000 new jobs in the U.S. and generate $5 billion in tax revenue.
President Trump claims that revenue will directly fund the controversial "1776 Commission," which aims to rewrite the curriculum of U.S. history classes with more "patriotic" views. Oracle and Walmart's statement also alludes to that goal, with the planned creation of an "AI-driven online video curriculum to teach children" various subjects.
But in a subsequent statement, ByteDance stated the $5 billion figure merely "refers to an estimate of the corporate income tax and other taxes" TikTok Global will pay in the "coming years."
4. China hasn't approved the deal
Chinese regulators also haven't approved the deal yet. Last month, China unveiled new restrictions that bar the export of technologies that use AI services like text analysis, content suggestions, and voice recognition. This could trip up a sale of TikTok's overseas app.
If push comes to shove, the Chinese government could threaten to shut down ByteDance's core Chinese business to halt the deal. If forced to choose between its home market and a messy deal with American investors, ByteDance might abandon its overseas ambitions altogether -- and leave a huge hole in the short video market for hopeful challengers like Facebook's Instagram Reels.
5. U.S. courts could still step in
President Trump ordered bans on both TikTok and Tencent's WeChat, but a federal judge in California recently halted WeChat's removal from U.S. app stores with an injunction, citing concerns regarding the harm done to the app's Chinese users within the United States. That 11th-hour decision indicates U.S. courts could still save TikTok from being banned, even if the deal with Oracle and Walmart collapses.
The key takeaways
The TikTok story isn't over yet, and there could still be plenty of twists ahead, with unresolved arguments about its ownership stakes, use of tax proceeds, and the new AI export rules in China. Investors should follow this developing story, which is becoming a heated flashpoint in the escalating trade war between the U.S. and China, to gauge its long-term impact on American and Chinese companies.
