Yahoo! Inc. (YHOO) might invest a portion of the cash it made from Alibaba Group Holding Ltd.’s (BABA) IPO in a fast-growing startup: Snapchat Inc. People familiar with the matter have said Yahoo will invest about $20 million in the $10 billion-valued Snapchat.
Yahoo’s Acquisition Spree
Yahoo has been on an acquisition spree since 2012, under the guidance of chief executive Marissa Mayer. This is deemed as Mayer’s attempt to establish Yahoo as a leading content provider, as its search business continued to dwindle.
With more than two dozen acquisitions under its belt, Yahoo has, of late, been facing opposition from activist investor Starboard Value. The firm has been pressurizing Yahoo to end its acquisition efforts and consider amalgamating with rival AOL Inc. (AOL).
The company’s last acquisition was that of the mobile-chat application MessageMe, which allows its users to ping one or many friends on their smartphones using emoticons and stickers. MessageMe has announced that it will end operations in November so that its eight-member team can work on mobile-related products for Yahoo.
Snapchat Acquisition
With its eyes on Snapchat, Yahoo might be seeking to emulate the success of its investment in Alibaba. The Alibaba investment fetched big returns at a very difficult time, allowing Mayer to buy time with shareholders as she endeavored to turn around the stressed core business.
The investment in Snapchat – though less than 1% of the Alibaba windfall – is deemed Yahoo’s first big move after the cash influx.
Looking Ahead
Though the reported stake is not a big one, it remains to be seen whether the Snapchat deal will pay off for Yahoo. Snapchat is a part of an elite group of technology startups that are now commanding valuations in the eleven-digit range, often referred to as the “Eleven digit club”.
Snapchat is yet to report substantial revenues. However, it has been seeing fast growth in usage. The company currently boasts of 700 million disappearing “snaps” sent per day and more than 500 million stories viewed daily.
Yahoo currently has a Zacks Rank #3 (Hold). Investors can also consider Facebook inc. (FB) which sports a Zacks Rank #1(Strong Buy).
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