TikTok’s Shou Zi Chew is in a tough spot. The chief executive of the social media app owned by China’s ByteDance is trying to persuade U.S. officials that it will protect American users’ data. But even if proposed fixes get past federal officials – no sure thing – it still must contend with activist state leaders. The company’s best defense is to add some transparency through an initial public offering.
TikTok’s addictive short-form videos have made its app wildly popular with users and advertisers. They have also attracted scrutiny of its ownership. Though several American investors including KKR and Tiger Global Management have taken stakes in the unlisted company, $300 billion ByteDance and its founder Zhang Yiming are still large shareholders. ByteDance also allowed the Chinese government to take a special management stake in one of its China subsidiaries in late 2019, Reuters reported in 2021. It’s an increasingly common feature as the People’s Republic exerts more control over private tech firms.
That’s problematic, given that trust between Chinese and American government officials is at a low. To make matters worse, ByteDance said late last year that some employees had improperly accessed TikTok user data of two journalists. While those employees have since been fired, American lawmakers, including Democratic and Republican congressional members, were angered over the breach.
TikTok escaped an effective U.S. ban when President Joe Biden in 2021 revoked executive orders by his predecessor Donald Trump prohibiting new downloads of the app. The company is now trying to work with the Committee on Foreign Investment in the United States to ease concerns about Chinese access to American customers’ data. TikTok has proposed constructing a division with a separate board, which includes a former U.S. security official, while the data is stored by Oracle in Texas, Reuters reported last year citing people familiar with the matter.
But even if TikTok is able to win over federal officials, state regulators can still get in the way. More than 40% of American states, including Wisconsin and Texas, have banned the app on government-owned devices.
One partial solution would be for TikTok to list its shares on a U.S. stock exchange. That would force the company to be more transparent about its operations and financial performance, while offering American investors the ability to take a direct stake in the company.
An initial public offering would not solve the question of Chinese government influence over TikTok’s parent, and could cause other headaches: Ride-hailing app Didi Global had to cancel its U.S. stock market listing after China’s internet watchdog launched a security probe. TikTok may also want to wait for tech valuations to recover. But if an IPO helps TikTok to keep operating in the United States, it’s worth a try. Reuters