After spinning off Alibaba, Yahoo has to decide on what to do with its cash, and to make it snappy. Just a week after the Alibaba IPO, Yahoo announced it would invest $20 million in Snapchat which has a $10 billion valuation, as reported by the Wall Street Journal.
Snapchat, founded by CEO Evan Spiegel, has perfected a disappearing text technology that allows for greater privacy, because it allows chats and images to disappear into thin air. It has 100 million users, less than half the number of Twitter, which has 271 million, but Twitter has been around for longer.
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While Yahoo hasn’t divulged the amount of the investment, some close to the matter told the Wall Street Journal that the number was in the area of $20 million. This would be a boon to Snapchat, which has been searching to raise capital through various avenues, including venture capital firms. A complete takeover would be risky for Yahoo, since the three-year old company has yet to generate revenue.
While Snapchat, given its growing popularity, is almost certain to generate value, it is unlikely to be as big as Alibaba, an investment that increased ten-fold from Yahoo’s $1 billion investment in 2005. It has been predicted that Yahoo will continue to invest and make acquisitions, such as its purchase of the startup MessageMe. Meanwhile, Starboard Value has taken a sizeable stake in Yahoo and wants it to merge with AOL.
