Snapchat Said in Funding Talks With Alibaba at $10B

http://www.bloomberg.com/news/2014-07-30/snapchat-said-in-funding-talks-with-alibaba-at-10-billion-value.html

by antr • 12 years ago

41 55 12 years ago

Alupis6• 12 years ago

My company has already created an 11main.com (Alibaba's first US ecommerce website) account and setup a significant amount of our catalog. The site is still in private invite only -- but hopefully will go public soon.

We expect Alibaba to come into the US on a storm. They are huge - they have capitol, and they can afford losses in the hundreds of millions per quarter just to compete with Amazon (and snuff out part of their market) - amazon just posted an 800 million USD loss last quarter without flinching.

Their revenue last quarter was greater than Amazon's and eBay's combined.

I think we are about to witness a clashing of the titans in a big way.

JonLim• 12 years ago

What would differentiate 11main (or any other Alibaba property) from offerings in the US? Amazon probably has quite a few people locked in with Prime and their Kindle devices (I know I wouldn't switch e-book providers) so I wonder what exactly would 11main do better?

Alupis6• 12 years ago

Not sure yet. 11main.com in particular has a more "local" feeling to it style-wise. I find it aesthetically pleasing to look at, instead of the blocky old look/feel of amazon.com.

I think 11main.com is only their first recon assault wave. More will come.

Alibaba is the parent company for a lot of child companies -- they have an equivalent for most of our major US companies[1]

It's a little intimidating when you realize the scale these guys are playing at.

[1] http://qz.com/206283/all-the-western-companies-youd-have-to-...

AndrewKemendo• 12 years ago

Amazon has slowly been raising prices, so Alibaba could come and undercut prices but where Amazon has it's best advantage I think is in it's lightning fast delivery. Something that takes more time and infrastructure to compete with.

mkaziz• 12 years ago

I'm just glad that Amazon has competition. I love them, and I don't want them going the way of the Comcast-style behemoth.

free2rhyme2143• 12 years ago

Google Fiber is going to change that. I can't wait.

Alupis6• 12 years ago

There's already a lot of dirty things Amazon does -- try selling in the same sector as them. You can't compete with a company that is willing to take tens of, sometimes hundreds of millions in losses for years just to ensure 10 years down the road, they have a controlling interest.

mcone• 12 years ago

Hmm... one problem they have already is their brand name. "11 Main" doesn't exactly roll off the tongue.

sdfghhasdf• 12 years ago

yes it does

nilsimsa2• 12 years ago

Yes it is a terrible name. First thing they need to change.

eclipxe• 12 years ago

Amazon didn't post a $800m loss last quarter. They estimated next quarter a loss between $400-$800m (mainly for employee stock compensation)

Alupis6• 12 years ago

Fair enough. I was attempting to make the point that they can post an $800 million loss and not sweat it. ;)

bsenftner• 12 years ago

I don't understand this valuation - it's makes no sense to me. Can anyone explain how SnapChat could be worth even a fraction of this? Where is the value in SnapChat's user base, future blackmail? It's not like someone using SnapChat is in the appropriate state of mind to follow any ads in the app. I don't get it...

asadlionpk• 12 years ago

Just like how 37Signals is worth $100bn. https://signalvnoise.com/posts/1941-press-release-37signals-...

onewaystreet3• 12 years ago

That post was mocking Facebook's valuation at the time. Now we know how wrong they were.

acoyfellow• 12 years ago

It's a communication platform that the younger generations are using as their primary form of communication. That is big.. not saying it's $10B big, but SnapChat has the chance to become something larger than just stupid selfies.

tomblomfield• 12 years ago

They may have a chance of becoming a useful communication platform, but at $10bn, there's not a huge amount of upside left. I'm struggling to see how the very substantial risk of not becoming that platform could have been priced into the investment.

Iftheshoefits• 12 years ago

What you wrote sounds to me like this: if SnapChat were something else, and not (just?) SnapChat, maybe in the same "space", it could be worth a lot.

Edit: I am deeply skeptical that a market filled primarily with people who have little or no income will support an ad-based revenue stream valued at $10bn. I would be even more skeptical if the revenue for SnapChat were supposed to come from a pricing structure.

amino• 12 years ago

and, quite importantly one that is not yet owned by facebook.

mynewwork• 12 years ago

So were ICQ, AIM, MSN, Google Chat, texting, maybe FB messenger, WhatsApp.

I myself have migrated my primary messaging platform through half that list. Isn't there a tremendous risk snapchat users leave that platform the way users have moved from one messaging platform to another for years?

Alupis6• 12 years ago

IMHO, it's yet another gross over-valuation of a tech startup. The Over-valuation Bubble will burst... eventually. These companies are not really worth their current valuations.

free2rhyme2143• 12 years ago

Of course. Since Snapchat didn't go the way of Tumbler or Instagram, they have to monetize their platform with ads like Twitter or Pinterest.

It will happen one day.

The real value that they have is the huge user base of kids who will forget about snapchat once they go to college.

nilkn3• 12 years ago

I think it's based on the expectation that at some unspecified date in the future Snapchat will find a way to make an unspecified amount of money via an unspecified method.

ProAm• 12 years ago

Commonly referred as:

Step 3: ???

Then step 4 is: Profit!

autokad• 12 years ago

i increasingly feel that we are not in a bubble, but we are in THE bubble

Throwaway8232• 12 years ago

Perhaps their evaluation isn't based on their profits, but how much value they can remove from other well established businesses? If they steal users from other platforms, like Facebook, then SnapChat is worth the amount of money Facebook is losing.

billmalarky2• 12 years ago

My theory is that no data on snapchat's servers has been deleted. Once they hit 100 million users they will have a shyamalan-esque reveal where all their users' photos will be posted publicly on a website for all the world to see except for the users who pay $9.99 per month FOR THE REST OF THEIR LIVES (insert dramatic gasps here) to keep their photos from being revealed.

Aside from such a scheme, I just don't see the valuation as warranted. I could stomach a billion and maybe two, but this is just selling to the greater fool at this point.

badloginagain3• 12 years ago

Sorry if this is a dumb question, but how does Snapchat make money?

free2rhyme2143• 12 years ago

They don't currently but they will have to display ads eventually like Twitter, Facebook, Pinterest, Tumbler, and the like because a business can't run on VC fumes forever with stockholders.

nkozyra3• 12 years ago

"but how does ____ make money?"

"They don't currently but"

Given how many times I've seen this in the last few years it might be time for me to figure out how to cash out before the lights go off.

nkozyra3• 12 years ago

And to iterate a bit on my last point ... there are spaces where advertising is inherently valuable, where you have a captive or semi-captive audience ... I don't see messaging (at least in the mobile space) as particularly banner-friendly.

Now obviously I wish I knew how to target the mobile messaging market; I don't. But it seems like you could see mass migrations based almost exclusively on presentation the way MySpace rapidly lost to Facebook.

theklub• 12 years ago

Ok, who wants to create the next chat app?

nkozyra3• 12 years ago

Everyone. And that will be the problem.

Just be prepared for a bunch of "think Snapchat, but for ..." or "Snapchat meets ..." proposals in the coming months / year.

billmalarky2• 12 years ago

I can already see the craigslist "entrepreneur" billion dollar ideas...

"It's like snapchat, but for dogs!"

Of course as the "coder" you will only get 1% equity.

ulfw3• 12 years ago

It seems, we are seeing the repetition of the first tech bubble when it comes to overblown valuations. Those valuations aren't really on realistic future earning potentials anymore. They rather are on future expected selling price. The idea being that 'I buy something for 10 times as much as it is worth, in hopes that I find someone who will pay me 20 times as much as it is worth' etc. Obviously that can't go on forever and the bubble burst might be as dangerous and devastating as the first one, unless valuations magically cool down.

thenmar• 12 years ago

But we aren't seeing anywhere near the same number of tech IPOs today as we were in 1998-2000. As I understand it, the "bubble" came from companies too easily selling their shares to ignorant, every day consumers who assumed "internet" meant the company would be huge. The only people investing in the companies you think are overvalued are VC firms with huge amounts of capital.

Now, are these VCs providing the same amount of capital that the IPOs of 1998-2000 were? Hopefully someone with more insight can comment on this, but intuitively it seems to me that the burst couldn't possibly be as bad, since there's just less easily available money to suddenly dry up.

ulfw3• 12 years ago

Very true. The IPO market has almost dried up (at least compared to back then). But the M&A market has almost replaced that. See Facebook's $19,000,000,000 acquisition of Whatsapp.

It's a little like the housing bubble. As long as I find someone who'd pay me even more than I bought something for, everything goes well and dandy and no one asks about the real value of a product/house/company.

panarky• 12 years ago

Just because it's expensive doesn't mean it's a bubble.

Remember the outrage at Instagram's billion-dollar valuation? Looks pretty cheap now. Same thing with Facebook, Netflix, Uber. Snapchat's simple idea is every bit as transformative as the simple ideas behind these companies.

Here's what smartypants bubble-callers were saying in 2004 about Google before their $2.7 billion IPO[0], also built on a pretty simple but world-changing idea:

"Pent-up demand for hot tech stocks is driving Googlemania."

"There are serious questions about Google's long-term viability"

"Word has it that Microsoft will feature an immensely powerful search engine in the next generation of Windows, due out by 2006."

"Taking down Google with better search is in [Microsoft's] strike zone."

"Google stands a good chance of becoming not the next Microsoft, but the next Netscape."

"It's tough to see why many Windows users would even bother with Google."

"Yahoo! has the advantage of being able to cull demographic data from its millions of subscribers and match them with advertisers."

"Google relies on ads for 96 percent of its revenue making it a one-trick pony vulnerable to the swings of the market."

Any of this sound familiar?

[0] http://www.newrepublic.com/article/politics/bubble-bath

ulfw3• 12 years ago

Google had a monetization model by then and their IPO was a quarter of snapchats valuation. So where is snapchat's four times as good monetization model?

nilkn3• 12 years ago

You're not really making me feel any better about this. Google's IPO was only 2.7 times the purchase price of Instagram? Even more, Google's IPO was a fourth of the current valuation of Snapchat? Those numbers don't feel right to me. Google also was actually profitable at the time of its IPO. It had a real business model.

wf2• 12 years ago

Alright, I really can't take it anymore. Is there any good literature explaining why users of Snapchat are worth this much? From my limited perspective it seems a lot of the services valued so highly for their user base have an incredibly hard time generating revenue from those users, particularly from short lived services like Snapchat. I keep seeing "promise" and "expectation" but what are those things when you're talking money? I read on NBC News estimates put the number of users at 50-70 million. What kind of ad revenue can you expect from that many users in an app where interactions are short lived on a single screen? What would be the conversion rate on IAP?

I'm extremely skeptical this company could be worth this much. 10 billion / 70 million is $142 dollars per user. (Supposedly this metric means something as FB paid $42 per user for Whatsapp?)

Not to mention, how does a company with the leadership this company has get valued this highly? I would think when the Controversy heading takes up 70% of your Wikipedia page that would negatively impact your business, obviously this is having the exact opposite effect though.

slouch• 12 years ago

Perhaps a future user has to tap the promoted snap before it deletes in order to "find out what happens next" or "get a coupon code." This would make the CTR (if that is what you could call it) of the sponsored snaps high, but you're still trying to convert teenagers.

onewaystreet3• 12 years ago

For investors, controversy is seen as meaningless (and sometimes as a good thing) unless it's hurting the business. In the case of Snapchat, it hasn't. As for making money, one shouldn't judge their ability to do so based on how the product looks today. More than half of Facebook's revenue now comes from mobile, a product that they only perfected a year ago.

wf2• 12 years ago

It seems like Facebook had a relatively clear path with already having the news feed. Keeping users on a single page absorbing information with ads intermingled unobtrusively, but with Snapchat I'm in any of three views for just a few moments before I close the app again; all that to say, I just don't think it's a very good comparison.

haosdent• 12 years ago

Alibaba...

joeblau• 12 years ago

A lot of people seem to have a misunderstanding of why Snapchat is worth so much. At first, I didn't get it either, but I think there is one main reason for this high, and what I feel might be justified, valuation.

"Single mode visual media capture" [1]. You might be asking "WTF does that mean?"; Well that's the title of Snapchat's patent which was granted for haptic video recording. That means all of the apps where you press and hold to record a video could face legal action for copying Snapchats technology. So if you look at the list, you've got:

  - Facebook's Slingshot, Instagram, Bolt
  - Twitter's Vine
  - Taptalk
  - Many others

One of my friends works for the USPTO and he says that a patent portfolio is the difference between a multi-billion dollar valuation and a multi-million dollar valuation. With the backing of Alibaba, Snapchat could essentially shut down all haptic recording apps or force clone companies to pay a licensing free for the technology.

[1] https://www.google.com/patents/US8428453?dq=snapchat&hl=en&s...

badloginagain3• 12 years ago

Thanks for the info, It's the first real explanation of value other than users and being the current hotness

npizzolato• 12 years ago

Ah, yes, hold down a record button instead of pressing it on and off! What a grand innovation worthy of a patent!

Snapchat Said in Funding Talks With Alibaba at $10B

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