The CEO of sexting-friendly messaging service Snapchat has reportedly turned down buyout offers worth at least $3bn because he expects his company will soon be worth much more.
According to a report in the Wall Street Journal, 23-year old Snapchat cofounder and chief exec Evan Spiegel barely considered a recent $3bn offer from Facebook, and he waved away $4bn from Chinese e-commerce giant Tencent Holdings, too.
That's because, the WSJ's sources claim, Spiegel is betting that by next year, Snapchat's message volume and user base will have grown enough that the company – which earns no revenue – will be even more valuable.
Never mind that Snapchat was valued at just $800m as recently as June, or that Facebook's all-cash offer would have been more than three times as large as the nearly $1bn it shelled out for photo-swapping service Instagram in 2012. Spiegel is reportedly holding out for the big bucks.
Not that his strategy is without precedent. Mini-messaging service Twitter has yet to turn a profit, yet its recent IPO left it with a market capitalization of around $23bn.
And Snapchat has been growing, if the company's own figures are to be believed. In September, Spiegel told the audience at the Techcrunch Disrupt conference that Snapchat users are sharing 350 million photos per day, up from 200 million in June.
Snapchat's main attraction, compared to competing services like Facebook-owned Instagram, is that it allows users to send photos on a temporary basis. The sender can set a time limit of up to 30 seconds, after which the photo will be deleted from the receiver's device.
That makes it ideal for trading naughty selfies that you don't want seen by eyes other than the intended recipient's (although Spiegel likes to say Snapchat is about "sharing moments").
It also means Snapchat's user base skews toward young adults, a valuable demographic for marketers. That's one reason why Institutional Venture Partners said it tossed some cash Snapchat's way in the company's most recent funding round. Another reason was because, according to IVP, Snapchat benefits from network effects, meaning its service becomes more valuable the more people sign up for it.
Just how the company plans to extract that value in the form of profits, however, is not known. But at least one person involved with the company knows where the money is. According to the WSJ, Spiegel has told potential investors that if Snapchat seeks further investment in 2014, he would like to sell a block of his own stock. ®