Chinese e-commerce giant Alibaba is investing $200 million in messaging service Snapchat in a deal that values the U.S. start-up at $15 billion. Snapchat, which is banned in China, lets users send text and photo messages that disappear in seconds after the recipient has viewed them. Sources familiar with the transaction told Serena Saitto of Bloomberg that the investment was part of Alibaba’s plans to access overseas markets.
$15 billion for a company that generates little revenue
The valuation marks a massive increase from Snapchat’s previous funding rounds. Last year, the messaging start-up raised funds at a valuation of $10 billion. In late 2013, Facebook had reportedly offered to buy Snapchat for $3 billion. The Los Angeles-based company boasts of more than 100 million users that send more than 700 million disappearing messages daily.
George Soros And The Human Uncertainty Principle
The division between academic economics and the way traders look at the market is deep. The efficient market hypothesis assumes that markets and valuations are always pushing towards an equilibrium, and evidence to the contrary gets pushed aside as fluctuations or statistical deviations. But the dot com bubble, the
Alibaba had first expressed interest in Snapchat in July last year. Its interest in the messaging service had cooled, only to be rekindled recently. Snapchat generates little revenue. Late last year, CEO Evan Spiegel said he aimed to turn it into a moneymaker. The company has started selling ads to marketers including Universal Pictures and Samsung.
Alibaba rival Tencent already an investor in Snapchat
It’s still unclear what value Snapchat would bring to Alibaba. The Chinese online retailer has been trying to create a messaging app to rival WeChat, which is owned by Tencent. But Alibaba’s bitter rival Tencent is already an investor in Snapchat, so Alibaba is unlikely to have any tactical advantage from this investment to counter WeChat.
The Hangzhou-based company has been on a shopping spree in recent years. It has acquired stakes in almost everything from mobile search provider Quixey, to ride-hailing service Lyft, to video calling app maker TangoMe, to Indian mobile commerce platform Paytm. Alibaba is expanding beyond its core business as part of an ambitious plan to serve two billion customers worldwide.
Alibaba shares rose 1.28% to $83.04 in pre-market trading Thursday.