Prime Highlights:

The AI search engine startup has proposed a merger with TikTok U.S., owned by ByteDance.

The merger would allow ByteDance’s investors to retain equity stakes and integrate more video content into Perplexity’s platform.

Perplexity AI’s valuation soared from $500 million at the start of 2024 to approximately $9 billion by year-end, fueled by investor interest in generative AI.

Key Background:

Perplexity AI has made a bold move by submitting a bid to merge with TikTok U.S., the popular short-video platform owned by ByteDance. This proposal, which was submitted on Saturday, aims to create a new entity combining Perplexity AI, TikTok U.S., and additional capital partners, sources familiar with the deal disclosed to CNBC.

According to the sources, the proposed merger would allow ByteDance’s current investors to retain their equity stakes in the new structure. The deal is also expected to enhance Perplexity’s video capabilities, integrating more video content into the AI-driven search engine platform. Though the details of the deal remain confidential, the potential merger is seen as a strategic move to expand Perplexity’s reach while capitalizing on TikTok’s user base.

Perplexity AI, a rapidly growing AI-powered search engine startup, has emerged as a major competitor to tech giants such as OpenAI and Google. The company began 2024 with a valuation of $500 million but saw a dramatic increase to approximately $9 billion by year-end, fueled by investor interest and the ongoing generative AI boom. Despite facing controversy over plagiarism accusations, Perplexity’s success highlights the shifting landscape of AI-assisted search, which poses a threat to traditional search engines like Google.

The merger would likely take several months to finalize, especially considering the ongoing regulatory scrutiny surrounding TikTok. The app’s future in the U.S. remains uncertain, with the Biden administration yet to finalize any decisions on potential penalties or restrictions on TikTok. President-elect Donald Trump, however, has indicated that he would likely extend TikTok’s deadline for reaching a deal by another 90 days after taking office.

In an interesting twist, ByteDance has previously expressed reluctance to sell TikTok U.S., which has led Perplexity AI to propose a merger instead of a traditional acquisition. The valuation for the new entity is believed to be “well north of $50 billion,” though the final price will depend on the preferences of ByteDance’s investors regarding whether they wish to retain stakes or cash out. This high-stakes merger proposal comes as both Perplexity AI and TikTok navigate a complex regulatory and business environment, with both companies looking to expand their influence in the competitive AI and social media landscapes.