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Facebook Inc (NASDAQ:FB) Best Decision Was Passing on SnapChat

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Facebook Inc. executives and Mark Zuckerberg will most likely have a smug smile on their faces after news emerged that Snapchat is probably the best $3B they never spent. Gawker obtained leaked financial documents of Snapchat, a photo-sharing app that rejected Facebook’s $3b buyout offer. The financial documents shows that Snapchat lost $128M last year as it only made $3M in revenue during the same period.

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The financials shows that Snapchat has a loss of $128M while its revenue side of the balance sheet had a mere $3M. The firm spent $47M on product, it spent $13.7M on “outside services”, and it spent under $1M on marketing. The firm spent $15.7M on payroll expenses, it spent $3.7M on rent and overhead costs. However, the firm still has $300M in cash at hand.

The best $3B Facebook never spent

The Washington Post has a diatribe on Snapchat’s financial woes, considering that the firm thought itself big enough to swim with the sharks when it rejected Facebook’s $3B offer. Towards the end of 2013, Facebook offered to acquire Snapchat in an all-cash transaction for $3B but Evan Spiegel, co-founder and CEO decided that Facebook’s offer didn’t make sense. A couple of months later, Snapchat started getting valued around $15B.

The case for and against Snapchat’s 15B valuation could be made from both sides of the equation but it is obvious that Facebook is better off without the Snapchat acquisition. Facebook has a number of quality assets in its ecosystem and the firm doesn’t really need a cash-burning app. Facebook is home to the social network site that bears its name, it owns WhatsApp, which it acquired for a whopping $19B. Then, there is Instagram, which it recently opened up to auto ads and it owns Messenger.

Snapchat might still steal some ad revenue

When Facebook bought WhatsApp for 19B last year, the messaging app didn’t have any clear revenue/monetization agenda. Yet, Facebook made the acquisition because of the huge user base that the app boasts as well as for the talent pool behind the app.

Snapchat might be losing money at the moment, but Timothy Lee on Vox believes that people are underestimating Snapchat‘s days of little beginnings. In his words, “there’s every reason to think Snapchat’s ad revenues will be large once the company has finished building its ad-sales machine.”

Snapchat is already building a huge user base; the firm says it has 100 million daily users who watch 2 billion mobile videos a day. Twitter has 300M monthly active users and it is worth $19B; hence, it is not farfetched to surmise that Snapchat might be worth $6B with its 100M users. A key factor is that Snapchat is still in its early days of growth and Facebook needs to keep an eye out for Snapchat in the ads revenue space.

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.

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