Yahoo! is close to a deal where it would invest $20m of its Alibaba pot in startup Snapchat, valuing the IM service at around $10bn, according to reports.
The Wall Street Journal and the Financial Times said that familiar people had told them that Yahoo! had started negotiations with the idea of investing up to $50m, but that talks were now for a $20m slice of the popular disappearing-chat app.
Yahoo! refused to comment on the reports.
Snapchat turned down an acquisition offer of $3bn from Facebook just last year, preferring to seek its money from a mixture of venture capitalists, financial firms and other companies. Yahoo!’s investment would more than triple that valuation of the company to an estimated $10bn.
Yahoo! will be hoping that investing in the startup at this stage will lead to serious profits down the line if Snapchat decides to go public or accept a different acquisition offer. This tactic has paid off handsomely with Alibaba recently. The company invested $1bn in a 40 per cent stake in the Chinese ecommerce firm back in 2005 and now has a stake worth tens of billions of dollars now that the firm has gone public.
Of course, as is now typical of these startups, Snapchat has a massive valuation without any sign of how to turn its millions of users into revenues and profits. The Wall Street Journal said that the firm was planning a new service for vanishing news articles and ads that might help with that, but the company has not laid out a clear plan for making money yet.
The $10bn valuation would be among the highest valuations yet for a company with no profits. Kittens’n’cupcakes site Pinterest scored a $5bn valuation without seeing a dime in May this year, but other firms at the $10bn mark like Airbnb and Uber have established revenue streams. ®
Sponsored: Webcast: Ransomware has gone nuclear