
Snapchat Spurned $3 Billion Acquisition Offer from Facebook - hornokplease
http://blogs.wsj.com/digits/2013/11/13/snapchat-spurned-3-billion-acquisition-offer-from-facebook/
======
sharkweek
Speaking candidly here -- perhaps this is one of many (MANY) reasons why I
will never be a billionaire entrepreneur, but I can wholeheartedly say that if
Facebook came to my startup, no matter how popular, and said "here's 3bn,
please give us your users" \-- I would without question sign on the dotted
line as fast as possible (and probably for A LOT less earlier in the game).
And to be honest, I probably wouldn't care how badly they may maul my
creation, I'm either:

a) sitting on a beach in Costa Rica

b) giving a completely different project a shot with my new found riches

Maybe I just completely lack vision, but what happens in two years when
Snapchat likely isn't cool anymore and all the kids are onto the next thing.
Where will the money be?

~~~
gkoberger
Only slightly related, but I'm sitting on a beach in Costa Rica right now. The
Internet is fast, it's beautiful (although it just rained), and is cheaper
than SF (where I'm from). You don't need a billion dollar company for A.

~~~
cylinder
I've heard the opposite - internet connectivity is quite suspect in Costa
Rica. Where exactly are you and what kind of connectivity package/price do you
have?

~~~
gkoberger
Right now, I'm in a restaurant on the beach. Internet is pretty good here (and
everywhere else I've been -- way better than the average coffee shop / hotel /
etc internet in the US). I use StrongVPN and haven't had any problems yet. I
Skype and watch Netflix all the time with no issues at all.

Here's a speed test (while off my VPN and at a restaurant rather than my
house): [http://www.speedtest.net/my-
result/3099024113](http://www.speedtest.net/my-result/3099024113)

~~~
adventured
Doesn't sound like a very accurate description of Costa Rica's Internet:

[http://www.ticotimes.net/Business/Internet-slow-but-
speeding...](http://www.ticotimes.net/Business/Internet-slow-but-speeding-up-
in-Costa-Rica_Friday-March-08-2013)

Costa Rica has among the slowest Internet speeds and least broadband access in
South America.

~~~
benologist
It's slow as in you're not going to find a 20 megabit connection all to
yourself. Normal speed is probably closer to 1 megabit, but you can easily get
a bit better than that these days (I'm on 5).

------
SeoxyS
I'm having a hard time understanding how,

1\. Facebook figures Snapchat is worth $3B, and

2\. Snapchat figures Snapchat is worth more than that, and refuses the offer.

The valuation multiples lately have gotten me to wonder what I'm doing. I'm
quite familiar with a growing startup that has 9 figures in yearly revenues,
and a 9 figure valuation. It makes almost as much money as Twitter, but the
valuation is less than 300x smaller. It makes infinity times more money than
snapchat, but has a thirtieth of the valuation. What is going on?

~~~
nqureshi
"It makes infinity times more money than snapchat, but has a thirtieth of the
valuation. What is going on?"

A valuation isn't just based on how much money a company makes _right now_.
It's based on how much money the company's expected to make over its lifetime.
Snapchat's valuation [1] is based on expectations of high future revenue.

(There was a point where Facebook & Twitter had 0 revenue, too. Now they're
both multi-billion dollar public companies.)

These stories always cause scepticism, especially in the HN crowd. It's the
most common response ("What?! 4 BILLION!?"), and an easy one (i.e. doesn't
require much thought), but it's the wrong one.

Sure, you can argue over the exact number, but let's consider the reverse
claim: are you really willing to bet that an app that processes 350m+ messages
_every day_ is worth _nothing_? If not, what would you value it at?

Answering that question requires hard thought; reflexive scepticism doesn't.
And if you were really imaginative & thought it through, you'd probably arrive
at quite a high number.

For many consumer apps, the path to market dominance involves offering a
service for free at first, and then 'monetizing' later on. The whole point of
venture capital is to allow that (common) pattern to happen; the result is
massive companies - like Dropbox and Airbnb - that weren't always cashflow
positive, and that _meaningfully benefit the world_.

Perhaps it was crazy of Snapchat to turn down $3 billion, and maybe they
really are overvalued, but it seems obvious that they are worth a lot of money
[2].

[1] Although valuations make great media stories, valuation is really not that
meaningful a number for private VC-funded companies.

[2] If you don't agree, consider that both Mark Zuckerberg & the founders of
Snapchat disagree with you. So either you're smarter than Mark Zuckerberg &
the founders of Snapchat, or you're probably wrong.

~~~
boucher
Yes, I'm willing to believe it's worth nothing. I'm actually willing to
believe it's worth less than nothing; that the cost of running a service
processing that much data for free may be higher than the service is truly
worth.

I'm not saying that's the case here, but it really is not hard to imagine.
It's quite obviously possible when you're giving away physical things for
free. The only difference here is that free software is a hell of a lot
cheaper than free cupcakes, but the cost still isn't zero.

~~~
aclements18
Question: If you were to have a CS grad from Stanford offer you 50% of all of
his income for the rest of his life. How much would you pay in one lump sum?
$100? $1 million? Probably more… Point is, you would agree the number is not
zero.

He doesn't have a job yet (and never had a job before), but by any measure
everyone that knows him says he's extremely talented. And now he's even
getting huge job offers from Google and Facebook.

Would you say that you wouldn't make that investment? Is he worthless cause he
has an upcoming rent payment due and also has to feed himself?

~~~
greenyoda
It would be an extremely risky bet which I would never make. There's no
guarantee that the grad wouldn't take your money and live the rest of his life
as a heroin addict -- lots of smart people don't live up to their potential.
Also, he might get hit by a bus tomorrow.

Similarly, lots of companies run by smart people don't live up to their
potentials, or are not lucky enough to be popular long enough to make billions
of dollars.

~~~
aclements18
To be clear, you wouldn't pay $100 to get half of his signing bonus at
Facebook?

All of those factors (risks) have to be taken into consideration, and you
price it as such. It's still a > zero figure.

~~~
XorNot
Definitely not, because at that valuation the offer is suspiciously too cheap
- in fact it's so cheap it's unlikely he'll pay out because the first thing
he'll do is hire a lawyer to get out of that contract.

~~~
Anderkent
You're nitpicking. It's a hypotethical. He's trying to show how something that
is not profitable right now might still have positive value.

The point of the question is whether you expect the person to earn enough that
getting 50% of their life income would be worth 100, 1k, 10k etc. today, not
'how likely that person is to actually keep the deal'.

~~~
XorNot
But that's exactly relevant to the point - the issue is that the details of
the arrangement matter, which is relevant to the wider point: _how_ are we
expecting profit to be made? Gesticulating to size doesn't actually monetize
something.

------
IgorPartola
Am I the only one who gets very irked that something as stupid and useless as
Snapchat, Facebook, Instagram, etc. get valued so highly, while actual useful
products by comparison are worth exactly nothing? It seems like you can spend
years carefully building something useful, that actually improves people's
lives and maybe cash out for peanuts, or you can do something that is
borderline abusive, or just a time waster, and become an instant billionaire.
</rant>

~~~
seehafer
We've regulated the hell out of stuff and left bits relatively unregulated.

Hence, more money going into bits. And more instant billionaires. Also no cure
for cancer, or flying cars or (insert 1950's projection of the 21st century
here).

edit: I'm borrowing Peter Thiel's "bits and stuff" metaphor here.

~~~
IgorPartola
I don't buy it. More regulation surely would change how software companies are
valued, but I don't think lack of regulation is why they get valued so highly.
Whether regulation here is good or bad I will not touch.

My first inclination for why things like Facebook and SnapChat are valued so
highly is because investors operate under the delusion that reaching many
eyeballs means profit. What they seem to not grasp is that there is a
fundamental difference between things like print and TV ads and ads on
Facebook. When Facebook was bought, I did a rough calculation that given their
valuation and number of users they'd need to extract $50-60 _on average_ from
each user to justify the valuation. That's a huge number. Most I know people
to date have given them exactly zero: they don't play the games, click on ads,
etc.

Once the idea that having a huge number of inert users comes under test and we
realize that it doesn't hold up, the valuations will plummet.

~~~
pmarca
What's the size of your short position?

~~~
Anderkent
Believing a company is overvalued is not sufficient reason to short it. You
must also have a reason to believe that other investors will realize it's
overvalued sometime soon too.

------
danso
Hate to re-hash the Innovator's Dilemma here, but this makes me judge big
media companies less harshly. With Facebook, we have a company that is roughly
just a decade old, and yet instead of organically creating a service that is
_well within their capability and talent_ , they find it easier just to
acquire.

Just a decade or two ago, newspapers also had this kind of buying power and
tendency to acquire rather than create...the New York Times bought About.com
for $400M in 2005, and then sold it last year for $300M (in cash).

I was never a big user of About.com, but the way its layout didn't change much
over the years, and how it seemed to be built on a not-very-flexible CMS,
makes me think that if instead, the NYT in 2003-2005 (when it had even more
money to spend) just had an in-house team of technologists and a budget of
$20-40M a year, could've built a much-better info source, and one that
would've, by now, been as dominant as About.com, but with the quality of NYT-
in-general.

[http://mediadecoder.blogs.nytimes.com/2012/09/24/times-
compl...](http://mediadecoder.blogs.nytimes.com/2012/09/24/times-completes-
sale-of-about-com/?ref=aboutinc)

I know Facebook's clone, Poke, ended up being a failure...but it can't be just
because the engineers and thinkers who work at FB are, on average, worse than
the SnapChat inventors. How much management and political baggage did it have?
(I'm assuming that the cost to build Poke was also under $1 billion...I _hope_
)

~~~
crystaln
They need to acquire because the failure of Poke likely has nothing to do with
management or political baggage or cost.

SnapChat is a brand with users. Not a product. The product itself is worth
very little.

~~~
danso
Well I'd argue that it _might_ be political baggage.

Is SnapChat's product really worthless? I mean, what it _offers_ \-- the
ability to casually and anonymously (...or not) send selfies and other private
missives -- is clearly valuable to people. And if Facebook buys it just to
shut it down, won't people just eventually flock to another service?

Or, worse, won't people stop using a FB-owned- _and-operated_ SnapChat
_precisely_ because it is owned by FB, and thus has even less of an illusory
sense of privacy? And similarly, _any_ FB-managed service has that lack of
illusory privacy and casualness...so what does FB accomplish here? The two or
so years it takes before people flock to some other non-FB service?

~~~
objclxt
> _Is SnapChat 's product really worthless?_

To Facebook, yes. Facebook managed to throw together a Snapchat clone (Poke)
in a couple of weeks. There is no IP, no technology worth acquiring, nothing
that couldn't be done in house at very low cost.

What Facebook doesn't have is the brand. I suppose you could argue SnapcChat's
product _is_ the brand. That's what's valuable. Personally, I think it's a
foolish play. As Facebook know well, there's no guarantee SnapChat users won't
flock to another service in a few years (let me rephrase that: SnapChat users
_will_ flock to another service). And SnapChat currently has no business model
to speak of in terms of per-user revenue.

~~~
crystaln
They also don't have a particularly sticky product. Once people slow down
using it, the content literally evaporates.

I don't see a lot of upside from $3B, but I've been wrong before...

------
nhance
I cannot understand the mindset of someone who turns down an offer of $3
billion dollars for their company that has no path to revenue, let alone
profit.

IMO, this is why you avoid investment money. Can you imagine VC "partners"
forcing you into a decision like this?

$3 Billion dollars _IS_ changing the world. How much more could you possibly
want? What kind of future is preferable to the one you'd have had you taken
this deal?

Can anyone make sense of this?

~~~
swang
Zuck turned down a billion. How much is Facebook worth now?

~~~
swalkergibson
Apples and oranges. SnapChat product != Facebook product.

~~~
dublinben
Exactly. SnapChat is much more important to me and my social group than
Facebook is.

~~~
swalkergibson
Would you ever make an in-app purchase on SnapChat? Or be willing to wade
through an advertisement to get to the snap? For how long?

------
mercuryrising
Can anyone explain to me how they're worth $3 billion dollars? They haven't
produced anything, they haven't advanced humanity, they have the eyeballs of
teens - for the moment, until something cooler comes along. Are they really
that valuable? It doesn't seem like there's any show stoppers for creating a
snapchat clone (rather than having X users at the moment), and if snapchat
were to start making money - say by sending ads to endorse a product rather
than a user generated picture, people would probably start leaving the
platform towards the newest green pasture.

I recently got a new phone, and I got hooked in to all the services my friends
were talking about in recent memory - instagram's dead, twitter's dead, snap
chat is in flux. Not for all users, but in my group of friends these services
aren't used as much. There isn't really anything keeping you from moving onto
something new - your digital life isn't really that valuable. It's probably
better to not read the conversations you had a year ago. The pictures are
always nice, that's probably the only thing that people would care about, but
with Snapchat they're gone (unless you hit save). I'm not sure what I'm
getting at, but this company isn't worth $3 billion dollars.

~~~
mikepmalai
When Facebook first reported strong earnings on Oct. 30, the stock was up ~15%
in after-hours trading or ~$18 billion in market value.

Those gains were basically wiped out when the CFO said, "We did see a decrease
in daily users specifically among younger teens."

With that one comment $18B in value disappeared.

I have no idea if Snapchat is worth $3B but what happened Oct 30 should give
you an idea of how valuable that demographic is to Facebook.

On a side note, Google should buy Snapchat and integrated it into Youtube and
use it as their new commenting platform (half kidding)

~~~
govindkabra31
very well said!

------
the_watcher
This is just insane to me. I don't care how much you believe in yourself. You
have never made money, and are offer $3b in cash. That should be enough to
more than satisfy your investors. Facebook seems like they are pretty good as
acquirers, based on the Instagram acquisition, they have let Systrom and his
team basically do their own thing, with a bit of prodding on faster releases
and a monetization plan. I don't find the Instagram experience to be any
worse. Plus, they now get the essentially unlimited Facebook resources, and
likely a pretty awesome salary and gig there. I honestly haven't heard anyone
effectively defend this.

------
thatthatis
Facebook spurned a $2bn Acquisition offer from Yahoo.

I'll say now about SnapChat what I said about Facebook at the time: They
probably know something about their market that we don't that leads them to
credibly believe they're worth more than $x bn.

~~~
badman_ting
And Groupon spurned a 6-billion dollar deal from Google.

Maybe they know something, maybe they don't.

~~~
jeremymims
Today, Groupon's market cap is $6.88 billion. So, maybe it would have been
smart to sell, but as of today, they're ahead.

I have a feeling that company wasn't quite the disaster you think it was.

~~~
JumpCrisscross
Not so fast. On 1 December 2010 (around when Google bid $6 billion for
Groupon) the 3-year Treasury traded at 0.84% - thus $6 billion in December
2010 was worth _no less_ than $6.2 billion today.

If you put $6 billion into the Russell 3000 index on 1 December 2010, on the
other hand, it would be worth $8.7 billion (14% more) today. Given that
Groupon is a high-beta mid-cap stock, I would expect this figure to be closer
to a fair baseline than the prior one.

------
habosa
Hate to be negative, but this could be their "Groupon Moment". When Google
offered Groupon $6bn for the company, they said no because they thought the
hockey stick would never end. Now they're in shambles, and nobody is cashing
out like they thought.

Snapchat is a GREAT product, but the potential for monetization is limited and
there are a lot of negative things about its security coming out lately. Seems
like a good time to "take the money and run", but maybe they'll prove me
wrong.

~~~
jobowoo
GRPN is at ~6.8bn market cap right now.

~~~
gaadd33
Assuming a 5% rate of return since that offer (2010) that money is now worth
6.95B, so GRPN is still below and at best, equal to that value.

~~~
marvin
Then again, I'm not sure this is a very meaningful answer - the variance in
startup valuation is _huge_ , so it could just as easily be $8 billion today,
just through randomness.

------
minimaxir
It's worth noting that Facebook's SnapChat "competitor" Poke, which was
rumored to have been created after the $1B offer was rejected, was released
almost a year ago: [http://techcrunch.com/2012/12/21/facebook-poke-
app/](http://techcrunch.com/2012/12/21/facebook-poke-app/)

I suppose waiting the year added another $2 billion.

~~~
rebel
I think the additional $2 billion in value was created by showing they have a
strong enough brand that a competitor can't throw together a clone quickly and
take away their market share.

~~~
XorNot
Conversely - what market?

Snapchat's monetization potential is staggeringly limited. Snapchat adds ads,
they annoy people, everyone moves to Poke or some other platform which does
the same thing.

Facebook at least, have a way to use the data from Snapchat to add value to
their other products - Snapchat, not so much.

------
trendoid
Not relevant to OP but I think companies like Snapchat becoming so popular
might not be good sign for this society's intellectual health. As already been
discussed here, we are becoming a society with very short attention span. I
know there is market for all this, but then one could say there is market for
face-creams that make people fairer(atleast in my country such a cream is very
popular). Imagine if we had a society where a decent SRS(spaced repetition
software) extension would have been offered so much wealth.

~~~
pa5tabear
where can I find this decent SRS extension?

Specifically I'd prefer open source JavaScript.

------
aclements18
I see a lot of the comments the thinking in the founders logic. But remember
there is also likely a good deal of pressure from investors who, depending on
circumstances, have quite a bit of say on if they approve a deal or not. It is
not uncommon for founders to want to sell and the vc want to hold out to
produce a better return.

Why is that? Economics of a venture fund. Say a VC recognizes this is likely
to be the biggest winner in their fund. If I run a $400 million dollar fund
and I am trying to return 3 times that to my investors that means that I have
to make my investors $1.2 billion. Considering my fund only owns 10% of the
company, a sale for $3 billy ain’t gonna cut it.

Yes, this would be one of the 30 investments I made from this fund, but I am
only expecting 3 of those to really knock it out the ballpark. I have to
extract all my returns from those three.

I certainly don’t know that this is the case for Snapchat, but it has been the
case for some. While this may sound like it’s holding founders money hostage,
this is the game they (hopefully) knew they were getting into when they took
that first dollar. Best of luck to them, they are still very much killing it.

~~~
swalkergibson
I really cannot fathom any investor that would not be absolutely ecstatic over
a $3B exit for a product like this. Would any VCs care to comment on this
specifically?

~~~
aclements18
Therin lies the problem. That is the fundamental conflict between the
diversified vc and the concentrated entrepreneur. It is not a secret, in fact
a lot of good VCs want entrepreneurs to have a very clear understanding of
what the end goal is.

Mendelson touches on this in a post:
[http://www.jasonmendelson.com/wp/archives/2013/06/the-vc-
bar...](http://www.jasonmendelson.com/wp/archives/2013/06/the-vc-bargain.php)

~~~
swalkergibson
I think you are perhaps conflating returns on the fund as a whole vis-a-vis
returns on an investment by investment basis. The goal of a VC, as I
understand it, is to only invest in companies that can provide 10x returns,
providing that one of those investments does return 10x, one returns 2x, three
break-even, and five are outright failures. If a VC owns 10% of a company that
exits for $3B, then the VC gets $300M, which returns 75% of the total fund. I
very seriously doubt any VC firm would have stopped this transaction.

------
bentcorner
Lots of comments here about people trying to understand why SnapChat rejected
the offer, but I've yet to see much discussion about the other half:

Why would Facebook offer SnapChat $3B? If they believed like most others
would, why wouldn't they just ignore SnapChat and let it die like the fad it
seems to be?

It's not just SnapChat that thinks they're worth more, Facebook does too.

~~~
giarc
They can't take the risk of letting it die. Perhaps that is what MySpace said
when thefacebook.com showed up.

------
rl12345
I have a very bad feeling about Snapchat.

My background is in Finance, I have traded and followed the markets closely
for nearly a decade and I've studied or read about basically all major bubbles
that happened around the world for the past millennium.

Price cycles are an inherent part of capitalistic markets, periods of both
over and undervaluation will _always_ happen, that's basically a part of the
games rule.

In the late 90s happened the web bubble. When is the mobile one going to take
place?

Now back to Snapchat. They are looking more and more like what I imagine the
poster boy of the mobile bubble would look like. Also, the macro conditions
(tech stocks making new highs after new highs, investors throwing easy money
at basically anything related tech etc.) are currently very bullish, which
means perfect conditions to the birth of a new a price bubble.

That being said, I wish the Snapchat crew the best wisdom and luck of the
world in navigating both the good and the bad times, whatever comes next.

~~~
pmarca
How big is your NASDAQ index short?

~~~
rl12345
Actually I'm just about to start fundraising - similar to short selling only I
don't lose money if the market keeps going up ;)

Trying to catch a bubble is very risky business. The biggest upward moves
happen just before it bursts so you can easily get totally wiped out if you
don't get the timing right with your shorts even if you are right. That's not
something I'm willing to figure out right now.

Also, I'm long term bullish on tech stocks. Doesn't mean I think there're no
sucker plays going on right now though.

------
joeldidit
There is no way Snapchat is worth $3 billion. I don't think the idea is even
worth $100 million. The funding round alone was insane. I don't know what is
going on in the valley and San Francisco these days, but I guess these
startups have to be funded somehow and these VCs want their return so everyone
will be rooting for transactions like these to happen.

If I had stumbled onto Snapchat and Facebook offered me $3 billion, I would've
grabbed the money before I could blink. I'd probably even throw them a party
to thank them for being so nice.

There will be too many imitators, and this privacy problem will be solved in
other ways. It will all cause Snapchat to die off. It will never realize these
lofty valuations.

------
acconrad
Despite the fact that whenever I read things like this it depresses and
befuddles me, the truth is a company (or really anything) is only worth what
the buyer is willing to pay for it.

Is Snapchat _really_ worth $3b? Apparently they are, because someone was
willing to buy them for that much. It doesn't matter if they make 0 revenue,
or if they 0 users, or the worst possible financial metrics. At the end of the
day, if someone is willing to buy them, then the founders and investors will
get their return on investment. The VCs won't care if they are hemorrhaging
money as long as at the end of the day, there is some sort of exit that is a
multiple of their initial investment.

I think the revelation I've discovered since diving into entrepreneurship is
that worth is not simply as black and white as how much money you're bringing
in versus how much you are spending. Part of a business model appears to now
be acquisition - it's like the analogy of do you want to offer a product for
$100,000 to 10 users and earn $1mm, or do you want to sell a product for $10
to 100,000 users? In this case, it's selling 1 product (your business and it's
userbase) to a customer (the parent company) for a large sum.

When you look at it that way, businesses are simply commodities just like the
products that are offered within them. _The business itself is the product_.
In that sense, the customer-facing product is simply just a mechanism to the
greater product, which is the sale of the business.

I hope I've articulated myself clearly enough, but that seems to be the
rationale that makes the most sense to me when I see seemingly "fruitless"
businesses valued at exorbitant amounts.

~~~
pmarca
This is NOT a comment on Facebook or Snapchat or any other company I'm
involved in --

You're sort of right. The other part that fills in the logic is "what is the
value of business X to acquirer Y" \-- seen through the eyes of acquirer Y --
business X when it becomes part of Y.

When Y buys X, X's opinion or the market's opinion of what X is worth is only
one input. The more important input is usually what Y thinks X will be worth
as part of Y. That is hard to understand from outside of Y. I am aware of
deals where the purchase price was way more than X thought they were worth,
but Y still got a bargain -- and every other permutation you can imagine.

For this reason it's very hard to have an objective view of what X is worth in
the abstract -- the takeout price in an acquisition depends on who is buying
it at least as much as any other factor.

------
alexkus
Was the offer withdrawn after 10 seconds?

...but actually just renamed to a .nomedia extension and left on the HDD?

------
disdev
Groupon was offered about $6 billion by Google in 2010.

Groupon turned them down, thinking they were worth more and then went the IPO
route.

Now, in late 2013, Groupon has a market cap of $6.8 billion.

Moral of the story? Take the money and run.

~~~
shawabawa3
$6 billion in 2010 adjusted by inflation would be ~$6.4 billion...

Am I missing something? Didn't groupon technically do around $400million
better out of not accepting the deal?

~~~
nasmorn
Try selling all that Groupon stock and see how long the market cap stays
there. 6 billion in cash or even Google stock is way better for the investors.

------
adventured
This valuation dance is strictly tied to how long the Fed can keep the stock
market artificially inflated. The moment the market tanks - which is the
inevitable downside to a five year bull run - the value that a company like
Snapchat can command tanks accordingly.

We're also due for another recession shortly, just going by the averages.

The clock is ticking Snapchat.

~~~
pmarca
How big is your S&P 500 index short?

------
swalkergibson
It seems as though the founders are intent on becoming billionaires. Hard to
imagine not cashing in (at 22!) for enough money to live the rest of your life
and the rest of your children's lives without a financial worry in the world.
I mean, what is the end-game for him here? More money?

------
programminggeek
I can't see how Snapchat would be able to be able to make $3 billion in
revenue on its own, but I could see how it might be worth that to FB.

Shut up and take the money.

------
unclebucknasty
Does anyone else think that this seems to be, at least to some extent, a
defensive play by FB? They seem to be determined not to go the way of MySpace
and are thus pursuing a strategy of acquiring whatever company/service begins
to capture large swaths of their audience (e.g. Instagram).

It seems a risky bet that may backfire at some point. If they expend $3B on a
company largely to reacquire the same eyeballs they once had themselves, then
those eyeballs flee the acquired property, then FB will have to rinse and
repeat. A few such deals of this scale and they may have a problem.

And, when you look at properties like SnapChat in particular, you see that its
differentiation is somewhat gimmicky and potentially ephemeral--accelerating
the need to do acquire again.

------
nashequilibrium
Seriously, whats has happened here, i see this over and over on HN, the top 12
comments are about Costa Rica! A few yrs ago we would be talking about the
market, statistics, strategy etc but now its like reading TMZ. Where has the
substance gone guys?

~~~
floody-berry
The topic is a hideously over-valued company turning down another hideously
over-valued offer. There was no substance to begin with.

------
rkayg
Does this mean that the current investors of snapchat (or maybe the board
members) also believe that snapchat is worth far more than 3 billion dollars?
Basically, was it just the CEO of Snapchat who made this decision or were
there others involved?

------
iamleppert
Anyone who uses snapchat is an idiot. Fortunately, there are a lot of idiots
in the world.

~~~
mcintyre1994
I know people who use Snapchat I wouldn't describe as an idiot, could you
explain why you think they are?

------
geetee
Hey, remember when Google offered to buy Groupon for $6 billion or whatever?
Good times.

------
ErikAugust
It's funny because $3billion is 58% of what Facebook took in last year in
revenue.

------
dschiptsov
But this is a brilliant publicity and, perhaps, together with the principle of
delaying gratification, will pretty soon bring them $5B offer.. Money are
printed nowadays.)

It is a lousy investment, btw. Teens will quickly migrate to some new cool
similar service as long as they will see FB logo, so they will end up with
another dead Yahoo Messenger.)

Snapchat is great because they found such an exclusive niche - the sexting
service for teens, so they could easily wait for a better offer.

------
newsum
guys, gals, ladies and gentlemen. The valuation is purely greed. A raw human
emotion not governed my logic or common sense. There's no financial model that
will be able to justify Snapchat at $3bln. So stop using logic to justify
and/or invalidate viability of the business.

People are greedy, especially VCs. they inflate the valuation since you have
Facebook ($114bln market cap) and other big Asian investors willing to pony
up.

------
brosephius
Anybody want to venture a guess as to what those 350 million daily messages
are worth as far as advertising goes? I feel like they would be relatively
"low quality" ad impressions but could they be worth a 0.1 cents per? I'm also
wondering how much better and more targeted an ad platform it could be by
figuring out users' interests based on the social graph data.

~~~
spada
a $100 CPM would be pretty high in any industry.

~~~
wmeredith
Yeah, YouTube is $2 or $3 per CPM. Adwords can be pennies to $50.

~~~
PilateDeGuerre
In my spare time I like to generate some organic search traffic for "lung
cancer" and "asbestos" and "mesothelioma" and click the AdWords. My Google
stock has been going up as long as I've been doing this. /s

------
coherentpony
This is ludicrous. Snapchat has no fucking revenue. What a chronic joke.

~~~
code_duck
Perhaps Facebook sees value in mining the network of people for connections.
Also, there's money to be had selling all that data to the NSA it seems.

------
wil421
How do you buy a company in which their only revenue stream is to seek more
funding?

A Social Media Startup's steps to profit:

1\. Collect Users 2\. ? 3\. Profit!

------
mcintyre1994
If you're turning down a $3b acquisition you probably have your eye on an IPO
right? I'm genuinely interested in where Snapchat plan to go to line up an IPO
if that is the case, because their current product seems horribly difficult to
monetise - to me anyway, I'm interested to see what they have planned.

~~~
antonius
Why would a company plan an IPO when they currently don't have a business
model that makes money? Suggesting Snapchat is gearing up for an IPO is
laughable.

------
X4
People work their entire life and when they're rich, they think that working
is the worst thing that could happen to them. Nature only allows the fittest
to win. Somebody who never works on his own, is in no way fit, useful or in
any sense going to be happy with anything he owns or will own. Switzerland is
doing the right thing, by paying it's citizen for living. The citizen make the
country worth, what it's worth, not the banks, not the government or anything
else.

I can understand how they value that offer by that logic. It's always a risk,
but that's what makes the game worth playing. 3 Billion is a lot, but their
future valuation must be close to that, if they are sure enough to decline the
offer. Alright dear traders, get your keyboards undusted and unleash your bids
when Snapchat files an IPO.

------
lotso
Snapchat is worth 3-4 billion because someone offered to buy them or invest
for a percentage that valued them at that price.

People arguing whether or not it is worth that price are silly. It's like
arguing whether a house is worth the asking price. It is if there is a buyer
who values it at that price.

~~~
skwirl
This is a silly and useless comment. "Why did Facebook offer $3 billion for
Snapchat?" "Because Facebook offered $3 billion for Snapchat." Thanks.

~~~
lotso
No. The comment is

"Why is Snapchat worth $3 billion? Because Facebook is willing to pay that
much and investors are willing to invest at that valuation."

~~~
trendoid
and everyone here is asking this : WHY/HOW "Facebook is willing to pay that
much and investors are willing to invest at that valuation"?

------
iambateman
Are the sticking their noses up at a $3bn offer because they want more money
in an acquisition (GroupOn), or because they have a compelling vision for the
product (Tumblr)?

Because I HIGHLY doubt the good folks at Snapchat have a vision for their
product that is so important that selling out would be wrong. It's snapchat.
If it disappeared tomorrow, millions of people would shrug, and that'd be it.

Last time I heard about a big founder snub a gigantic offer, it was
GroupOn...and well... [http://business.time.com/2013/03/01/groupon-fires-ceo-
andrew...](http://business.time.com/2013/03/01/groupon-fires-ceo-andrew-mason-
the-rise-and-fall-of-techs-enfant-terrible/)

------
code_duck
As far as I can tell, the best tactic for me would be to create a product that
seems so stupid that I couldn't possibly ever picture using it myself. Nobody
ever went broke underestimating the good taste of the American public, as they
say.

Most people who have the ability to create professional apps and websites,
such as those of us on HN, are so far removed from this segment of audience
that we don't have much of a chance of understanding and creating whatever
products they actually want.

I can't think like the average 12 year old with a 103 IQ. I wasn't in line
with average kid thinking when I was 10 or 12 and certainly I'm not now.

------
kmfrk
Do we know who holds the majority of the voting stock in this case?

------
badman_ting
Ooh, that seems unwise. I'll be happy to be proven wrong but man is 3 billion
gonna be tough to beat. I know a lot of people use it and all, but still. Wow.

------
jzhen
Here's an interesting analogy. Suppose you own a small parking lot in NYC and
a developer wants to build an 80 story apartment building. He has bought out
all the land surrounding yours and offers you $X for your lot. Assume $X
represents fair value plus a small premium. Would you take this deal? Or would
you hold out for more, knowing that you're the final piece to the puzzle?

------
mickdarling
It is all about vision. What is their vision of the future?

1) Make a cool buck, and chill out in Costa Rica.

2) Make cool companies forever.

3) Make Snapchat HUGE and somehow remake the world with it or something else.

4) Asteroid mining.

If (1) is good enough, and guaranteed, then all options are still on the
table.

Only if (4) scale projects are the goal should they sell now. If any other
vision is really what they have in mind, they are set.

I personally would aim for (4) or (5) :-)

------
gesman
He'll face Groupon's fate.

Honeymoons of offers to overhyped entities tends not to last long, and
competitors are not sleeping either.

------
joshfraser
I have no inside information on whether this is real or not, but I always take
these type of stories with a massive grain of salt. These posts play well to
the interests of the startup and lots of false rumors get circulated. There's
little accountability as both companies will say "no comment".

------
marvin
Bad move. I am willing to bet that Snapchat will never earn more than 3
billion in profits or get a better acquisition offer. The only concievable
opportunity would be an IPO where its market cap could concievably be higher
for a limited time.

------
xamdam
"When a company you barely heard of spurns billions of dollars..." is what I
said, about Groupon.

I heard Snapchat managed to carve themselves a valuable niche, but this seems
like overconfidence.

------
mjffjm
Looks like Spiegel didn't pay attention at the bullish attitude Andrew Mason
had this early on turning down crazy acquisition offers with Groupon, and we
know how that ended.

------
spdy
Why do most people think the founders still have a saying in this?

------
the_watcher
Another part of this that SnapChat could benefit from is Facebook's legal
team, who are probably the best versed in founder disputes of any team in the
country.

------
FollowSteph3
Does anyone remember a simar company a while ago with large traffic and little
revenues that was almost acquired for $1B but turned it down called Digg ;)

~~~
pa5tabear
The offer was withdrawn.

They didn't turn it down.

------
mrkmcknz
I can only imagine how the markets would have reacted to FB spending 2%
thereabouts on a company with no revolutionary IP or revenue.

------
tomatojuice
The real problem with this is that Facebook is acknowledging the value of
Snapchat.

~~~
code_duck
Facebook acknowledged that when they said last month that they are losing
engagement and traction with teens.

------
zokj
how much is
[http://www.google.com/patents/US8428453](http://www.google.com/patents/US8428453)
worth

------
baraka2000
Too many comments to read. They are idiots.

------
mcormier
OOOOHHHHHHHHHHHHHHHHHHHHHHHH Snap!

