Alibaba in Talks to Invest in Snapchat 

Snapchat Inc. has held preliminary talks with Chinese e-commerce giant Alibaba Group Holdings Ltd. to raise a new round of financing that could value the mobile-messaging startup at about $10 billion, according to people familiar with the matter.

The discussions may not lead to a deal, the people said. It is unclear whether the talks are ongoing.

An 11-figure valuation for a company with close to zero revenue and an app that didn’t exist four years ago would mark a new high watermark in this era of investor optimism, as financiers compete to buy shares of the hottest technology companies and drive up valuations.

The discussions also highlight the growing allure of U.S. tech startups to China’s largest e-commerce giant. As Alibaba prepares to hold an initial public offering later this year, it has made a series of investments in fast-growing Silicon Valley startups—such as video-call app maker TangoMe Inc.—with an eye toward expanding into the U.S. market.

While Alibaba’s Taobao and Tmall shopping sites dominate China’s e-commerce market, Alibaba also is competing with homegrown rival, Tencent Holdings Ltd. TCEHY -1.57% , for the attention of China’s more than 500 million smartphone users. Tencent’s WeChat messaging service has about 400 million active users, with a bulk of them in China, and the company is trying to integrate other services like mobile games and e-commerce into the chat app.

Alibaba has been trying to promote its own messaging map called Laiwang, but the app has far fewer users than WeChat. So it has struck a number of deals with other Chinese companies since last year to bolster its services for mobile users. Among those deals, Alibaba bought a stake and later reinvested in Sina Corp.’s  Twitter -like Weibo microblog business.

The latest investment talks could put Alibaba and Tencent in a tug of war over Snapchat. Tencent is already an investor in Snapchat after participating in an earlier round of fundraising. Alibaba’s investment could prevent Tencent from deepening its ties with Snapchat. Bloomberg News earlier reported the possible investment from Alibaba.

Snapchat makes no money from its mobile app, which sends visual messages that vanish after a few seconds. But the increasing popularity of the service with young smartphone users has sparked interest in the business, evidenced by Facebook Inc. FB +1.31% ‘s acquisition offer for Snapchat of around $3 billion and an investment led by Coatue Management LLC valuing the startup at more than $2 billion, both last year.

A $10 billion valuation may not be far-fetched in the fast-moving technology landscape. Facebook paid $19 billion earlier this year for messaging app WhatsApp, and four other private companies have been tagged by venture capitalists with a valuation of $10 billion valuation of more. However, those companies—which includes taxi-hailing app Uber Technologies Inc., online storage company Dropbox Inc., home-rental site Airbnb Inc. and Chinese smartphone maker Xiaomi Inc.—are all said to have revenue in the hundreds of millions of dollars.

Evan Spiegel, Snapchat’s 24-year-old co-founder and chief executive, could use additional capital to fuel a hiring spree and speed product development. The startup has raised close to $130 million from investors, which beside Tencent include venture firms Benchmark, SV Angel, Lightspeed Venture Partners and General Catalyst.

Snapchat doesn’t disclose its number of users, but researcher comScore estimates 27 million people used the app on iPhones and Android phones in June, up from 11 million a year ago. Mr. Spiegel has said users send more than 400 million “snaps,” or vanishing messages, per day and that the service is most popular with young women.

Alibaba has been aggressively seeking investment opportunities in the U.S. In October, the company led a $206 million investment in ShopRunner Inc., an Amazon.com Inc. rival that offers unlimited two-day shipping from U.S. retailers. Alibaba has also participated in rounds of funding for ride-sharing service Lyft Inc.

This wouldn’t be the first time Alibaba has considered investing in a company in which Tencent already has a stake. In March, Alibaba agreed to buy a 60% stake in ChinaVision Media Group, a Hong Kong-listed television and film production company in which Tencent already held an 8% stake.

(Lizette Chapman contributed to this article.)

 

Source: WSJ

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