Yahoo Said Close to Investing in Snapchat at $10B Value

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Yahoo! CEO Marissa Mayer
Marissa Mayer, chief executive officer of Yahoo! Inc., speaks at the Cannes Lions International Festival Of Creativity in Cannes, France, on June 17, 2014. Photographer: Simon Dawson/Bloomberg

Yahoo! Inc. is close to investing in Snapchat Inc. in a funding round that values the startup at $10 billion, according to a person with knowledge of the situation.

Yahoo is 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 has 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 Officer Marissa Mayer, who is trying to turn around the Sunnyvale, California-based Web portal. Yahoo is working to build up its offerings in areas such as mobile and messaging that are attracting many 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 LP last month pushing Yahoo to stop making acquisitions and to consider breaking itself up or combining with AOL Inc.

Eleven-Digit Club

Snapchat, a Los Angeles-based company that makes a mobile application for sending disappearing photo messages, is part of an elite group of technology startups that are now commanding valuations in the eleven-digit range, amid a financing boom in Silicon Valley. Other closely held companies that are valued at $10 billion or more include house-sharing app Airbnb Inc. and file-sharing company Dropbox Inc. In June, car-booking app Uber Technologies Inc. raised $1.2 billion at a valuation of $17 billion.

A Yahoo representative declined to comment on Snapchat yesterday, as did Christina Lee, a spokeswoman for Kleiner Perkins. Mary Ritti, a spokeswoman for Snapchat, didn’t respond to a request for comment. The Wall Street Journal yesterday reported Yahoo was nearing an investment in Snapchat and TechCrunch earlier reported the MessageMe deal.

In a statement about MessageMe, Yahoo said the company is “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 yesterday. The stock is up 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 CEO in July 2012. Earlier this year, the Web portal agreed to acquire startup Flurry Inc., an analytics provider, for more than $300 million. Last year, Mayer made her biggest deal with the purchase of blogging service Tumblr for about $1 billion.

Alibaba Cash

Last month, Yahoo reaped more than $9 billion before taxes by selling part of its stake in Chinese e-commerce company Alibaba Group Holding Ltd. at its initial public offering. Yahoo had said in July it would return at least half of the cash to shareholders, while not laying out any plans for the balance 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, U.S. 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.”

Hot Messaging

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 $1 billion in the Chinese company, which has helped drive Yahoo’s value in recent years. Yahoo still holds a stake of more than 10 percent in the e-commerce provider, even after selling shares in last month’s IPO.

Snapchat, which has little to no revenue, has been experiencing fast growth. Users send more than 700 million disappearing “snaps” a day and more than 500 million stories viewed daily, the company has said. It competes with Facebook Inc., which tried to buy Snapchat for $3 billion last year and started its own product to send ephemeral photos and videos after being rebuffed.

Building Up

Snapchat, led by CEO Evan Spiegel, has has been building out its business. Chief Operating Officer Emily White was in New York this 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 Inc. in February.

MessageMe is a mobile application that lets users easily ping one or many friends on their smartphones. The service features more than 180 emoticons and stickers to let people express themselves.

MessageMe’s investors include True Ventures, Greylock Partners, Social + Capital Partnership and First Round Capital. MessageMe raised about $12 million and investors are losing money on the sale to Yahoo, said one of the people with knowledge of the deal.

MessageMe said on its website it will be shutting down its application and will “focus on helping build the best mobile communications products for Yahoo users.”

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