Stocks to watch on Tuesday: CE, IEX, SONC >>> READ MORE

Snapchat Doesn’t Want Zuckerberg’s Billions

Snapchat founders pull a Zuckerberg, hold out for more money


When Mark Zuckerberg was building Facebook (FB), he rejected a variety of mega buyout offers from companies like Yahoo! (YHOO). But lately, the tables have turned.

Now Facebook is the giant looking for prey, as seen with FB’s recent $3 billion buyout offer for Snapchat. But the Snapchat founders took a page out of the Zuckerberg playbook, defiantly rebuffing the offer. That’s a bit of an embarrassment for Facebook — and could be an ominous sign for the social network.

As should be no surprise, the masterminds behind the app were two twenty-somethings who were students at Stanford, Evan Spiegel and Bobby Murphy. Bored with Facebook and concerned about how how much information was publicly available, they decided to create an app that addressed those issues. They set out to build an app that allowed sharing between friends, and made sure photos and videos disappeared after being viewed.

It was a simple concept, and the timing was perfect when the app hit the market in late 2011. Users now log an astounding 350 million snaps per day. Twitter, by comparison, gets about 500 million tweets per day.

True, the rejection of the Facebook offer doesn’t necessarily mean that a deal is off the table. The co-founders want to allow the service to grow even more, which should help boost the valuation. As seen with the recent Twitter (TWTR) IPO, there is tremendous interest in mobile-first operators. And there are plenty of companies that would probably love to own Snapchat, such as Google (GOOG), Microsoft (MSFT) or even Yahoo.

There may also be interest from Asian operators like Tencent Holdings — the company is rumored to be putting together a $200 million funding round. Tencent owns WeChat, a top messaging app in China, and also owns a piece of KaKao, which is a big chat player in South Korea. In other words, Snapchat would be a good addition to Tencent’s mobile app arsenal.

Losing Snapchat could be a big loss for Facebook, which is already having trouble keeping teens engaged. When the company’s CFO mentioned Facebook’s concerns about user engagement, his comments actually brought the stock value down.

And Zuck cannot be happy that his offer is now public news. His interest in Snapchat is a big validator — and will certainly get the attention of his fierce competitors, who may be even more encouraged to make offers for the company.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

©2017 InvestorPlace Media, LLC