According to the recent report published on Bloomberg, Alibaba (BABA, Financial) plans to invest in Snapchat, valued at $15 billion. Snapchat is a mobile application which enables users to send disappearing messages. China’s biggest e-commerce company which sells almost everything on the virtual platform, intends to invest $200 million, according to the report. Interestingly, Snapchat CEO Evan Spiegel said during Montgomery Summit in Santa Monica held in California that "We are famous for not talking about the future." He also has already turned down $3 billion offer made by Facebook (FB, Financial) last year.
Global businesses are eager to invest in mobile technologies due to consumer’s preference of using a smartphone in practically everything, from furniture shopping to booking their holiday packages. Businesses are increasingly interested in investing on mobile applications which will increase their revenue and market reach.
Snapchat And Technology
Snapchat is a part of new startups with multi-billion dollar valuations. Companies and investors are lining up to invest in these startups. If this latest deal gets on the ground, Snapchat is ranked only behind Uber and Xiaomi mobiles, according to the new data presented by CB Insights. Currently, Snapchat’s market value is estimated around $15 to $19 billion, Xiaomi’s estimated market capital around $45 billion, and Uber’s valued at $40 billion.
Since the beginning of this year, Snapchat has been looking for the $500 million funding to further enhance their mobile application. Probably, this $200 million investment offer by Alibaba is separate from that round. Snapchat has recently added more new features to its application to expand beyond just disappearing text and photo sharing facility. For example, the new feature called Discover – allows its users to explore among numerous content produced specially for this platform.
Alibaba is a Chinese e-retailer company founded by Jack Ma in 1999, and last year it made the world’s largest IPO offering when it was listed on the Nasdaq. Since, then e-commerce giant is looking to broaden its e-commerce market share in the US.
Alibaba wooing Snapchat
The intention behind this investment is still not clear, but it is understood that Alibaba is probably looking to expand its business horizon by investing in finance and entertainment, which will help to achieve their objective to reach 2 billion consumers globally. Researchers and experts also predict that Alibaba is also looking to tap into the social networks. The Chinese e-commerce giant processes more transactions than Amazon (AMZN, Financial) and eBay (EBAY, Financial) combined, but it has under-performed in the US market so far. Recently, Alibaba stated that it has seen tremendous growth in users accessing its website via smartphones and tablets. Thus, Alibaba is looking for mobile applications which will enable its users to access the website using smartphones.
Its investment in Snapchat can be aligned with its long term objective to become the world’s leading e-commerce website. Alibaba has also made investments in other technology companies in the past: Uber’s competitor Lyft, in messaging application Tango, and search provider Quixtey.
Our Take
Alibaba’s investment in mobile technologies can be seen as a major move to tap the e-commerce space in the US. Secondly, it will also provide American retailers a new way to sell their products to growing middle class consumers of China.
