It has been big news across social media that Snapchat turned down a buyout offer from Facebook. Speculations are rife regarding the wisdom of this decision, the reasons why it was made, and the reasons for the offer in the first place. Is Facebook desperate to hold onto its younger members? And is Snapchat CEO Evan Spiegel crazy to turn down such a large sum of money? More to the point, is Snapchat worth more than that?
As far as what Snapchat is or is not worth, it may be too soon to tell. At only 2 years old, the company, whose mobile app allows users to send texts and photos that disappear in a matter of seconds, is still the new kid in town. Of course, that’s part of the appeal; Snapchat is new enough to be intriguing to a young audience, largely comprised of kids who’ve determined that Facebook is passé. That’s also why turning down such a large offer from Facebook seems insane. If Snapchat is banking on the fact that social media platforms have their day in the sun and then lose their audience to newer, hipper platforms, why wouldn’t the company capitalize on its own 15 minutes of fame by going ahead with the sale?
It may be because Snapchat thinks it can do better. Some other companies, including China’s Tencent Holdings, have made offers pushing the value to as high as $4 billion. While other, more established platforms are valued much higher—Twitter at $25 billion and Facebook at $100 billion—$4 billion still seems like a lot for a company that up until a month ago operated out of a house in Southern California. It’s especially interesting to think that this kind of money is being offered for a company that has yet to turn a profit.
Part of this valuation is based on Snapchat’s rapidly growing user base, evidenced by recent reports by the company that it’s processing more than 350 million messages a day, up from 60 million in February. Messaging services like Snapchat and Tencent’s WeChat are experiencing exponential growth, and many of the users are teenagers. With recent research indicating that Facebook’s popularity is waning among younger users, it’s not surprising that the social media giant would be interested in snapping up the next big thing. Last year’s purchase of Instagram for $1 billion seemed, to many, a bad investment, but it’s a gamble that paid off; certainly Facebook was looking to repeat that success with Snapchat.
Of course, making business decisions based on the whims of 13–19-year-olds is a risky proposition. Teenagers are notoriously fickle, and what’s cool one week may be old news by the next. In addition, kids don’t always make the best decisions regarding “the next best thing” in tech. However, part of Snapchat’s charm is that messages don’t save for longer than a few seconds; that’s extremely attractive to people who value their privacy, regardless of age. Whether or not it will hold its appeal and continue to grow is something we won’t know until later.
In the end, Snapchat may have gained some ground by turning down Facebook’s offer. There’s something to be said for the cocky attitude displayed by this young upstart in turning down such a large sum of money, and for some suitors this makes the business more appealing. The refusal seems to have already bought Snapchat some extra leverage, while arousing interest in other companies who might consider making an offer.
For the rest of us, this development with Snapchat and Facebook just points out how rapidly the face of social media changes—even the major players sometimes have to scramble to keep up.