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What would it take for you to turn down a US$3-billion offer to buy your business? Think about that for a moment and try to get an idea of what was going through the head of Snapchat CEO Evan Spiegel when he reportedly said no to an acquisition offer from Facebook.
According to the Wall Street Journal, Spiegel was offered US$3-billion by the social network for the photo-sharing app he helped develop while still a student at Stanford University.
His hope, the Journal reports, is that Snapchat’s user and message numbers will continue growing, eventually giving it a much larger valuation.
For anyone unfamiliar with the service, it specialises in photo messages that disappear after a few seconds and is especially popular with teenagers. Much like Instagram, which Facebook bought for US$750-million in 2012, it’s made pretty much zero revenue to date.
As of now, most of the money coming into the business has been as a result of investments, the most recent of which was a US$60-million funding round from investors including Institutional Venture Partners. Those investments have valued the company at around US$860-million.
But if the company’s not profitable, surely its investors would have been chomping at the bit for an acquisition deal to go through? That might ordinarily be the case, but remember we’re in a period where profit matters less than cool factor.
How else do you explain the fact that Twitter’s IPO was massively oversubscribed, despite the fact that it’s openly admitted to making a loss? Indeed, its solid stock market performance means that it’s now valued at around US$25-billion — way more than the US$10-billion Google offered to buy it for at one stage.
If the current mood prevails, then Snapchat’s founders could make a serious chunk of change from going public. Even if that’s not their plan though, Facebook’s likely to only get more desperate for Snapchat’s offering.
By its own admission, fewer and fewer teens are using the service and buying Snapchat would give it a valuable “in” into that youth market.
You also need to factor in the fact that Facebook isn’t the only one courting Snapchat. According to AllThingsD, Chinese internet giant Tencent is about to be announced as the company’s latest investor in a deal that could see it valued as high as US$3.6-billion.