Earlier this week Yahoo announced that they are the lead investor and financier of the social network Snapchat. After making over $9-Billion USD on the IPO of the chinese E-commerce website Alibaba, Yahoo hopes to invest in the tech start up Snapchat. Snapchat is a social network that allows users to send pictures and videos to each other and have them delete after a small amount of time. After being launched in July 2011 Snapchat has grown to become one of the most widely used social networks.
After turning down offers from Google, and Facebook, Snapchat has seemingly agreed to partner with Yahoo for an apparent $10-billion USD evaluation. This offer is more than three times the valuation that Facebook offered Snapchat late last year. However, to some this price seems to be quite high considering that Snapchat has yet to make any profit. The struggle that Snapchat is having is that they need to find a way to earn a profit off the nearly 700 million Snapchats that are sent daily. In February 2007 Youtube was purchased by Google for the price of $1.65-Billion dollars. At the time that Youtube was purchased they had yet to make any profit. Last year alone Google made $5.6-Billion dollars off of Youtube add revenue alone. Proving that although the company was not profitable at the time of purchase there was revenue to be made.
If Yahoo does purchase Snapchat for $10-Billion dollars Yahoo will need to figure out how they could profit off of the millions of users that the app generates on a daily basis or else they run the risk of sinking billions of investor’s dollars into a failing business model.
Sources
http://www.theglobeandmail.com/report-on-business/international-business/yahoo-said-close-to-investing-in-snapchat-at-10-billion-value/article20917778/
http://mashable.com/2014/10/03/yahoo-investing-in-snapchat/