In the closing days of 2013, not long after Halloween died down, a report emerged that Facebook (News - Alert) was looking to buy Snapchat for the then-staggering price of $3 billion. Snapchat reportedly turned down the offer, and a new report out today suggests that might have been a good idea, as the company is in talks with Alibaba about a new round of financing that would put the company's value at more than three times what Facebook offered.
Snapchat, the maker of a mobile application that allows users to send photo messages back and forth, is currently in talks with Alibaba Group Holding Ltd about a deal that may put Snapchat at a value of fully $10 billion. Though this may not ultimately come to pass—the talks are still going on, and anything could change in the interim—if it actually does come to pass, Snapchat will be part of a narrow fraternity of tech companies like Airbnb, storage firm Dropbox, and Uber that are valued in terms of 11 digits.
So what's driving this incredible valuation? A combination of factors seem to be at work here. One is the obvious, that Snapchat as a whole is extremely popular, with over 700 million “snaps” going out every day, and over 500 million stories viewed every day, that's a lot of users in one place engaging in a lot of content development and distribution, even if it's in the very shortest terms.
But it's not all about Snapchat here; Alibaba has been extremely motivated to come into the United States markets more than ever before, and putting some cash into Snapchat's operations would actually be right in line with earlier efforts, if not necessarily of the magnitude it's considering with Snapchat. Recently, Alibaba started a fund in the United States specifically for such investment, and put in part of a $250 million round for Lyft, part of a $206 million investment in ShopRunner, and part of a $50 million investment in Quixey. That's a pretty wide variety of markets, but all have something in common: mobility. Lyft handles ride sharing, while ShopRunner is a subscription-based shipping service for businesses. Quixey deals in mobile apps.
With that kind of valuation afoot, that could mean some pretty big things for Snapchat. If it seems outlandish that Snapchat could command that kind of a value to begin with, that makes some sense. With Facebook getting rebuffed on an offer a third that size just a few months ago, it's clear that it's not just Alibaba seeing value here. Some have expressed a belief that Alibaba may be more interested in Snapchat the brand than in Snapchat the company? Could Alibaba be considering bringing Snapchat back to China, a concept that might go over well given the populace there, and reports from May suggest that Snapchat is actually banned in the country. With a Chinese firm to back it, well, that might change a few minds in various ministries. But what could Alibaba do in the United States with Snapchat on its side?
There are plenty of possibilities here in terms of just what this deal could mean, whether Alibaba wants Snapchat as a lever to get into the United States or if Alibaba wants to use itself as a lever to get Snapchat into China, or any of dozens of others. Only time will ultimately tell just which one of these becomes reality, and until then, it's a development well worth watching.