Alibaba.com Limited (HKG: 1688) Is Financing Snapchat at $10 Billion Valuation

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By Mark Michaels on August 2, 2014 Company, Consumer Staples, Technology & Software

Snapchat, one of the hottest social media startups today, is engaging with discussions with Chinese shopping website Alibaba.com Limited (HKG: 1688) to get funding, at a 410 billion valuation.

Snapchat turned heads in the market last year when it rejected an offer from Facebook (NASDAQ: FB) for $3 billion. Clearly, that bold move is paying off for the startup. This new $10 billion valuation propels Snapchat into the elite ranks of social media – a title that Facebook, Twitter (NASDAQ: TWTR), Uber, and Airbnb boast.

Snapchat allows users to take and send photos to other users. It is unique in that it deletes the photos from the receiver’s phone after the photo is viewed once, creating an private, transient, and fun social media experience. Over the past few years, Snapchat has risen exponentially in popularity. It currently operates with 700 million snaps and 500 million “my story” views per day.

Alibaba is on track to release its initial public offering later this year. The e-commerce company based in China is searching for all possible ways to send demand to its stock offering. By investing in a strong growth company like Snapchat, Alibaba can certainly gain benefits. However, investors are wondering if Snapchat is being overvalued at $10 billion.

An Unfit Leader

Evan Speigel, the founder and CEO of Snapchat, has experienced plenty of missteps and mistakes. Some of his decisions have come under fire, prompting some to see him as not fit and too arrogant to lead a company that is worth billions of dollars.

Speigel’s most recent PR mistake has landed the 24 year old CEO in hot water again. This time, a series of emails that Speigel had sent to his fraternity brothers when he was in college at the Kappa Sigma fraternity at Stanford University, were released online. The emails were sexually explicit and misogynistic, and caused a firestorm of rage and protests across the web. Speigel apologized in a statement, saying that he is embarrassed and mortified that his idiotic emails during his frat days were leaked online, and that he has no excuse for his actions.

Additionally, an anonymous hacker broke through Snapchat’s security on January 1^st of this year, and published the usernames and portions of the phone numbers of over 4.6 million users. The hacker seemed to be trying to make a point about the company’s lax security policy, since he did not publish the entire phone numbers of the users. Speigel has not apologized for the breach.

Speigel has also been criticized for his arrogance in the way he responded to Facebook’s offer. The email exchanges between him and Mark Zuckerberg were leaked online, and Speigel’s messages emitted an entitled, “you come to me, I don’t come to you” attitude. Is Speigel even actively aware of Facebook’s market cap? Critics are says that the young CEO needs to be put in his place.

While many businesses would view these actions and mishaps as a red flag and refuse to work with the company, Alibaba seems to have turned a blind eye to these events. For the Chinese e-commerce giant, Snapchat is business and nothing more.

Alibaba’s Want For Snapchat

China’s giant e-commerce company could be releasing the biggest IPO in the history of the market. Thus, it will pull out all the stops in order to send demand for its huge stock offering. If Alibaba purchases a venture capital stake in Snapchat, the Chinese company could be in position to become a worldwide technology and Internet conglomerate, rather than a Chinese e-commerce site.

Additionally, Snapchat is beginning to show promising prospects in terms of investment and monetization. Its monetization strategy is starting to take form, such as the curated Snaps.

For example, Snapchat released its “Rio Live” feed on the final day of the World Cup. Users could send photos or videos of their World Cup experience to the Rio Live feed, and Snapchat would choose the best snaps to add to the “Rio Live” story, which was available for viewed for every single Snapchat user across the world.

Additionally, Snapchat also made a deal with EDC, or Electric Daisy Carnival, an enormous electronic music festival in Las Vegas. Snapchat offered the 400,000 event goers Wi-Fi and created the “EDC Live” story. Similar to the “Rio Live” story, the “EDC Live” story enabled users to send snaps to the feed for all users to view.

With these two huge event deals taken down, Snapchat’s business model is beginning to look promising. Despite the CEO’s hiccups in the past, Snapchat could be an incredible opportunity for investment for Alibaba.