Snapchat’s Future is an IPO

Jacob Harper |

In November 2013 the social media news sphere was dominated by buzz concerning “exploding” social media company Snapchat’s decision to turn down Facebook’s (FB) acquisition offer totaling $3 billion. At the time, Snapchat seemed to be playing a pretty dangerous game.

Where does a company with zero revenue that’s less than two years old get off turning down a payday of that magnitude? And who are they to make their investors wait that much longer to realize gains on their massive investments? That is, any gains at all?

Since that time, not only have the existing investors continued to wait patiently, but even more investor cash has been poured into Snapchat’s coffers. As the Courier-Journal reports, yet another round of funding has pushed the value of Snapchat to $3.6 billion, representing a 20 percent uptick in five months.

With yet another round of private equity injections, Snapchat will face even more pressure to eventually bring in money. But with such a valuation, the prospects that that monetization will come via acquisition are becoming dimmer. Although there are exceptions – especially considering what Facebook shelled out for messaging service WhatsApp – with every round of funding Snapchat is looking less like an acquisition target, and more like a nascent social media powerhouse priming itself to eventually take on Facebook and Twitter (TWTR) .

Even with a $3.6 billion valuation, Snapchat is still six times smaller than Twitter and 42 times smaller than Facebook. But with Snapchat still seeing user growth that far outpaces those two, it’s not insane to imagine that they might really take a shot themselves.

After all, Facebook turned down a buyout offer themselves in their infancy, spurning Yahoo Inc.'s (YHOO) $1 billion offer in 2006. And that decision to go at it alone seemed to work out for them – and their private equity investors – pretty well indeed.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 118.71 0.76 0.64 13,906,616
TWTR Twitter Inc. 19.39 -0.09 -0.46 11,924,401
YHOO Yahoo! Inc. 41.35 0.83 2.04 5,100,761
RPDM RPDM n/a n/a n/a 0

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