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EvanBuck (99.79)

What Is Snapchat Thinking?

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November 13, 2013 – Comments (5) | RELATED TICKERS: FB , GRPN , YHOO

News broke today that Snapchat has refused a whopping $3 billion buyout offer from Facebook (NASDAQ:FB).  Some are comparing this move to Facebook's refusal to be bought out by Yahoo! (NASDAQ:YHOO).

While the general consensus from financeland seems to be that Snapchat made a blunder (including myself), I do have to admit that there might actually be some good to this.  Matthew Yglesias over at Slate makes a fairly convincing argument that the founders of Snapchat can now "reach for the stars" and try to develop their company more without being potentially stifled by another company's ideas or overarching corporate structure.  After all, Yahoo!'s Flickr is a great service, but its effectiveness is stymied by the company who owns it.

But still, a $3 billion offer for a company with exactly zero revenues is a hefty sum.  And Groupon (NASDAQ:GRPN) has suffered after it rejected a buyout deal from Google (NASDAQ:GOOG).

Overall, we'll see what happens next for Snapchat after this deal fell through.  I personally feel that $3 billion was more than a fair deal for Snapchat executives to sell the company to Facebook, and Facebook would have been boosted if the deal went through.  But who knows - I might look back in a few years and say I was wrong.

5 Comments – Post Your Own

#1) On November 13, 2013 at 10:30 PM, HarryCaraysGhost (99.71) wrote:

Snapchat, a rapidly growing messaging service, recently spurned an all-cash acquisition offer from Facebook for $3 billion or more, according to people briefed on the matter.

The offer, and rebuff, came as Snapchat is being wooed by other investors and potential acquirers. Chinese e-commerce giant Tencent Holdings had offered to lead an investment that would value two-year-old Snapchat at $4 billion.

[More from WSJ:
Google Targets Lower-Tier Smartphone Market With Moto G]

Evan Spiegel, Snapchat’s 23-year-old co-founder and CEO, will not likely consider an acquisition or an investment at least until early next year, the people briefed on the matter said. They said Spiegel is hoping Snapchat’s numbers – of users and messages – will grow enough by then to justify an even larger valuation, the people said.

A Snapchat spokeswoman declined to comment.

Snapchat specializes in ephemeral mobile messages, including text or photographs, that disappear after a few seconds. The service has not generated any revenue, but is especially popular among teenagers and young adults, who use the app to send messages to friends.

The approaches to Snapchat come amid rising exuberance for social media, and mobile-messaging upstarts in particular. Twitter, an unprofitable short-messaging service, is valued at roughly $25 billion after its initial public offering last week. Pinterest, an image-sharing app, last month raised $225 million from investors who valued the company, which also has no revenue, at $3.8 billion.

[More from WSJ:
Twitter to Allow Customized Timelines]

Facebook had earlier offered to buy Snapchat for more than $1 billion, the people briefed on the matter said. In recent weeks, Facebook representatives contacted Snapchat again to discuss an all-cash offer that would have valued Snapchat at $3 billion or more. At that price, it would be Facebook’s largest acquisition, more than double its nearly $1 billion deal for photo-sharing social network Instagram in 2012.

Facebook is interested in Snapchat because more of its users are tapping the service via smartphones, where messaging is a core function. Facebook has rapidly increased the share of its revenue coming from mobile advertising, but said last month that fewer young teens were using the service on a daily basis.

Tencent, a diverse Internet company, owns WeChat, a major messaging service in China, and has a stake in KaKao, a popular South Korean app. It was vying to lead a group of investors that had offered to invest $200 million in Snapchat at a valuation of roughly $4 billion.

[More from WSJ:
Amazon Plans to Offer Desktops in the Cloud]

In June, Snapchat raised $60 million from investors including Institutional Venture Partners; that round valued the company at $800 million.

Three months later, Snapchat said its usage had nearly doubled, to 350 million messages or “snaps” per day, up from 200 million in June.

If Snapchat pursues an investment early next year, Spiegel has told investors he would like to sell a block of his own stock, according to people familiar with those conversations.

Huh, looks like China's got it's eye on it.

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#2) On November 13, 2013 at 10:35 PM, HarryCaraysGhost (99.71) wrote:

Snapchat, a rapidly growing messaging service, recently spurned an all-cash acquisition offer from Facebook for $3 billion or more, according to people briefed on the matter.

The offer, and rebuff, came as Snapchat is being wooed by other investors and potential acquirers. Chinese e-commerce giant Tencent Holdings had offered to lead an investment that would value two-year-old Snapchat at $4 billion.

[More from WSJ:
Google Targets Lower-Tier Smartphone Market With Moto G]

Evan Spiegel, Snapchat’s 23-year-old co-founder and CEO, will not likely consider an acquisition or an investment at least until early next year, the people briefed on the matter said. They said Spiegel is hoping Snapchat’s numbers – of users and messages – will grow enough by then to justify an even larger valuation, the people said.

A Snapchat spokeswoman declined to comment.

Snapchat specializes in ephemeral mobile messages, including text or photographs, that disappear after a few seconds. The service has not generated any revenue, but is especially popular among teenagers and young adults, who use the app to send messages to friends.

The approaches to Snapchat come amid rising exuberance for social media, and mobile-messaging upstarts in particular. Twitter, an unprofitable short-messaging service, is valued at roughly $25 billion after its initial public offering last week. Pinterest, an image-sharing app, last month raised $225 million from investors who valued the company, which also has no revenue, at $3.8 billion.

[More from WSJ:
Twitter to Allow Customized Timelines]

Facebook had earlier offered to buy Snapchat for more than $1 billion, the people briefed on the matter said. In recent weeks, Facebook representatives contacted Snapchat again to discuss an all-cash offer that would have valued Snapchat at $3 billion or more. At that price, it would be Facebook’s largest acquisition, more than double its nearly $1 billion deal for photo-sharing social network Instagram in 2012.

Facebook is interested in Snapchat because more of its users are tapping the service via smartphones, where messaging is a core function. Facebook has rapidly increased the share of its revenue coming from mobile advertising, but said last month that fewer young teens were using the service on a daily basis.

Tencent, a diverse Internet company, owns WeChat, a major messaging service in China, and has a stake in KaKao, a popular South Korean app. It was vying to lead a group of investors that had offered to invest $200 million in Snapchat at a valuation of roughly $4 billion.

[More from WSJ:
Amazon Plans to Offer Desktops in the Cloud]

In June, Snapchat raised $60 million from investors including Institutional Venture Partners; that round valued the company at $800 million.

Three months later, Snapchat said its usage had nearly doubled, to 350 million messages or “snaps” per day, up from 200 million in June.

If Snapchat pursues an investment early next year, Spiegel has told investors he would like to sell a block of his own stock, according to people familiar with those conversations.

Huh, looks like China's got it's eye on it.

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#3) On November 13, 2013 at 10:46 PM, EvanBuck (99.79) wrote:

@HarryCarysGhost Ah, yes, I saw that in the WSJ article both you and I cited but forgot about it.  Perhaps that's why Snapchat turned down Facebook - they're waiting for a better offer from China...?  IDK, to me a bird in the hand is worth two in the bush...$3 billion is a lot better than potentially $0 if the China deal wouldn't go through.

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#4) On November 14, 2013 at 11:55 AM, Schmacko (58.18) wrote:

It's greed.  The app is a fad with no real chance of making significant revenues.  I honestly can't even think of how it would make any revenues.  I don't see teenagers wanting to line up to pay for the service and I doubt advertising is really viable: "Here's my dissappearing sext message - NOW WITH ADDS!"

He should've taken the money.

Report this comment
#5) On November 14, 2013 at 12:51 PM, jiltin (27.17) wrote:

True, It's greed. Snapchat is repeating the mistake Jerry Young did. They will understand when economical down turn hits.

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