Snapchat, the loss-making company behind a disappearing photo messaging service, is reportedly in talks with investors that could value the business at $10bn.
According to Bloomberg, the investors include Alibaba Group, the Chinese internet giant currently planning the largest tech initial public offering of all time. All parties have so far declined to comment.
Last year Snapchat’s chief executive and co-founder Evan Spiegel rejected a $3bn offer for his messaging service from Facebook. Spiegel has said Mark Zuckerberg warned him he planned to launch a rival service unless he sold. “It was basically like, ‘We’re going to crush you,’” he told Forbes magazine.
Google then reportedly offered $4bn for the company but was similarly rebuffed.
Since those rejections there has been a flood of money into the tech sector that has led some to speculate about a new tech bubble.
In April, house-sharing app Airbnb raised another $500m from investors at a price that valued the company at $10bn. In June, car-booking app Uber raised $1.2bn at a record-breaking valuation of $17bn.
Snapchat allows people to draw on photos taken on mobiles and send them to friends. Messages disappear a few seconds after they have been opened. Snapchat has also recently added a texting service that, again, wipes out messages once they have been read. The company says its users send 500m messages a day and is popular with teens and a growing number of older users concerned about privacy.
The company is likely to face stiff competition from Facebook which has its own Snapchat-like service called Slingshot. Facebook-owned Instagram also unveiled a Snapchat rival, called Bolt, this week. Slingshot is Facebook’s second attempt at a Snapchat killer. The first service, Poke, was not a success.
Matt Turlip, senior analyst at PrivCo, said: “Ten billion is quite a valuation. It’s got to be the most valuable pre-revenue start-up ever.” He said other companies like Airbnb, Dropbox and Uber that had recently attracted sky high valuations were at least making money. “At the moment Snapchat is just an app,” he said.
But Turlip said Snapchat could build a valuable business from its loyal and active users and had recently filed copyright applications for mobile payment systems. WeChat, a popular Chinese messaging service, makes money from mobile payments. Turlip said Snapchat could also be a valuable platform for advertisers.
“Snapchat does seem to have cornered this market,” he said. “They are going to have to prove that they can get the revenues to match. You can’t go on taking venture capital money forever and not produce revenues.”
Turlip said the deal was also an interesting sign of Alibaba’s US ambitions. The Chinese firm has made some smaller investments in the US already but Snapchat would be by far its most high profile investment to date.
Alibaba is expected to go public in September and raise $20bn, eclipsing the record $16bn Facebook raised for its IPO. Analysts have forecast the company could be valued as high at $240bn, making it more valuable than JP Morgan Chase, the US’s most valuable bank.
