It was announced earlier today that Yahoo plans to invest approximately 20 million dollars into Snapchat, the mobile photo-sharing company. This investment would place a 10 billion dollar valuation on Snapchat, which has yet to make a single dollar in revenue. This investment may seem questionable at first, especially because Yahoo’s core business has been deeply struggling over the past few years and needs immediate attention. Yahoo CEO Marissa Mayer is insuring that the core business is being taken care of, but in the meantime she is planting small investments around the tech space. Yahoo has suddenly found an influx in cash due to Alibaba’s recent Initial Public Offering. Yahoo paid 1 billion dollars for a 40 percent stake in Alibaba in 2005, and recently cashed out as the e-commerce company’s stock price skyrocketed on the second day of trading. Yahoo’s profits from Alibaba amount to more than 5 billion dollars, and the company is actively looking to deploy this capital into more investments. On a much smaller scale, Yahoo seems to be hoping that Snapchat is that next big investment. Snapchat has been receiving a lot of attention this past year, especially when Venture Capital firm Kleiner Perkins & Byers committed to invest 20 million dollars back in May. It will be interesting to see if Yahoo’s investment pays off, as Snapchat is certainly the largest valuation ever for a company that has not generated any revenue. Snapchat did recently announce expansion into “vanishing news articles,” so we should keep monitoring the company and see if there will be any more big moves made this year.
- Jag Buddhavarapu