Serena Saitto and Brian Womack San Francisco
YAHOO is close to investing in Snapchat in a funding round that values the start-up at $10 billion (R113bn), according to a person with knowledge of the situation.
Yahoo was the lead investor in the financing and set the terms of the round, said the person, who asked not to be identified because the information is private.
Venture capital firm Kleiner Perkins Caufield & Byers had also invested as part of the Snapchat funding, people with knowledge of the matter have said.
Yahoo separately also agreed to buy mobile chat platform MessageMe. The deal was for less than $12 million, said people familiar with the situation.
The moves continue an acquisition and investment tear that Yahoo has embarked on under chief executive Marissa Mayer, who is trying to turn around the web portal.
Yahoo is working to build up its offerings in areas such as mobile and messaging that are attracting new users.
The company is under increasing pressure to reveal how it plans to shore up its core online advertising business, with activist investor Starboard Value last month pushing Yahoo to cease making acquisitions and to consider breaking itself up or combining with AOL.
Snapchat, a Los Angeles-based company that makes a mobile application for sending disappearing photo messages, is part of an elite group of technology start-ups that are now commanding valuations in the eleven-digit range, amid a financing boom in Silicon Valley.
Other closely held firms that are valued at $10bn or more include house-sharing app Airbnb and file-sharing company Dropbox. In June, car-booking app Uber Technologies raised $1.2bn at a valuation of $17bn.
A Yahoo representative declined to comment on Snapchat on Friday, as did Christina Lee, a spokeswoman for Kleiner Perkins.
Mary Ritti, a spokeswoman for Snapchat, was not available for comment. The Wall Street Journal reported on Friday that Yahoo was close to investing in Snapchat and TechCrunch earlier reported the MessageMe deal.
In a statement about the latter, Yahoo said it was “excited to welcome the eight MessageMe employees to the Yahoo team”.
Yahoo rose 1.3 percent to $41.03 at the close in New York on Friday. The stock has added 1.5 percent this year, compared with a 6.5 percent gain in the Standard & Poor’s 500 index.
Yahoo has done more than two dozen deals since Mayer became chief executive in July 2012. Earlier this year, the web portal agreed to acquire start-up Flurry for more than $300m.
Last year, Mayer made her biggest deal with the purchase of blogging service Tumblr for about $1bn.
Last month Yahoo reaped more than $9bn before taxes by selling part of its stake in Chinese e-commerce firm Alibaba Group Holding at its initial public offering (IPO). Yahoo had said in July it would return at least half of the cash to shareholders, while not laying out any plans for the rest of the proceeds.
What Yahoo will do with the remaining cash has attracted investor scrutiny. Starboard has asked Mayer not to spend any more money on buying companies, saying her acquisitions so far have failed to amount to much.
Investing in Snapchat “is a dicey move for Yahoo”, said Paul Sweeney, the US director of research of Bloomberg Intelligence. “Snapchat is certainly attracting plenty of attention in Silicon Valley and is well thought of. However, many Yahoo investors prefer that the company return more, rather than less, of the Alibaba proceeds.”
In getting a piece of Snapchat, Yahoo may be trying to emulate what it did nearly a decade ago with Alibaba. In 2005, the web portal invested about $1bn in the Chinese firm, which has helped drive Yahoo’s value in recent years. Yahoo still holds more than 10 percent in the Chinese e-commerce operator, even after selling shares in last month’s IPO.
Snapchat, which has little to no revenue, has been experiencing fast growth. Users sent more than 700 million disappearing “snaps” a day and more than 500 million stories were viewed daily, the company has said. It competes with Facebook, which tried to buy Snapchat for $3bn last year and started its own product to send ephemeral photos and videos after being rebuffed.
Snapchat, led by chief executive Evan Spiegel, has been building out its business. Chief operating officer Emily White was in New York last week for the Advertising Week conference, explaining the service. Earlier this year, the company hired Facebook executive Mike Randall to lead its advertising partnerships.
Snapchat said in May it was adding an option for users to chat with text, joining an increasingly crowded mobile-messaging market that also attracted Facebook. The social network agreed to pay about $19 billion for messaging app WhatsApp in February. – Bloomberg