Snapchat Reportedly Rejected $1 Billion Buyout Offer from Facebook

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News Posted: Mon, Oct 28 2013 3:31 PM
It's not unprecedented for mobile apps to receive billion dollar valuations. One need only look at the sum Facebook paid for Instagram, a mobile photo sharing apps that allows users to add filters to their photography. It's a simple app, but because of its widespread appeal, the developers earned a ginormous payday.

Another super popular app is Snapchat. For the uninitiated, Snapchat is a photo and video messaging application. Users can snap photos, record short videos, and add text and scribblings before sending it off to one or more recipients with a timer attached. Those who receive the photo or video are allowed to view it anywhere from 1 to 10 seconds before it disappears.

It's another simple concept, and it's become hugely popular. According to a report in The Wall Street Journal, Facebook chief Mark Zuckerberg wanted to discuss acquiring the app for over $1 billion, more than it paid for Instagram, but his advance was rejected by Snapchat chief and co-founder Evan Spiegal.

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Seems insane that Snapchat would reject a greater than $1 billion buyout offer, but at just two years old, the mobile app is immensely popular and could be worth much more. While it's not making any money currently, the startup is trying to raise up to $200 million at a valuation of $3 to $4 billion (its market value last June was $800 million).

Lest you think Spiegal and company have lost their marbles, Pew Internet just today released a study suggesting that around 9 percent of mobile phone users in the U.S. use Snapchat. That works out to around 26 million users, and that might be a conservative figure. Pew also said that 18 percent of mobile phone users in the U.S. use Instagram, which would work out to 52 million people. However, Instagram claims to have 150 million monthly users around the globe, with some 60 percent living in the U.S. That works out to 96 million users, well above Pew's estimate.

In any event, Snapchat is on a roll and has grown a significant user base in a short period of time. Turning down a $1 billion bid might seem like a huge risk, but if it can raise three to four times as much by holding out for a better offer, it will be the smartest move the company's founders ever made.
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Jun replied on Mon, Oct 28 2013 10:13 PM

I dont understand, if they aren't making any money, why is the company worth so much money? Someone please tell me. $1 billion is a lot of money to turn down!

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Atticus14 replied on Tue, Oct 29 2013 4:04 AM

Having that many users/community on a mobile platform (with typically no ad blocking) is an advertisers wet dream. Facebook buys it, plasters ads on it, servers those ads to 26 million people and thats where the valuation comes from, plus longer term expectations that it should grow much more. (2 years with 26 million+ users is nuts and should only become more popular)

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scolaner replied on Tue, Oct 29 2013 5:40 PM

Heh. Reminds me of the story of Microsoft trying to buy Facebook for some insane amount of money and Zuckerberg turning them down. Equal parts courageous and insane.

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