Alibaba's More Than $260 Million Investment Opens New Revenue Source For Snapchat

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Jack Ma, Executive Chairman of Alibaba Group, speaks at the WSJD Live conference in Laguna Beach, California October 27, 2014.
IN PHOTO: Chinese tech giant Alibaba Group Holding Ltd is planning to invest US$200 million in Snapchat, a popular mobile application for sending photos that disappear later on. The investment would raise Snapchat’s valuation to $15 billion. IN PHOTO: Jack Ma, Executive Chairman of Alibaba Group, speaks at the WSJD Live conference in Laguna Beach, California October 27, 2014. Reuters/Lucy Nicholson

Chinese tech giant Alibaba Group Holding Ltd is planning to invest US$200 million ($261 million) in Snapchat, a popular mobile application for sending photos that disappear later on. The investment would raise Snapchat’s valuation to US$15 billion.

The Alibaba investment was revealed by the people who asked not to be identified because discussions are still private, reports Bloomberg. The deal will make Snapchat rank behind mobile car-booking application Uber and Chinese smartphone manufacturer Xiaomi, according to data compiled by CB Insights.

The Los Angeles-based start-up company Snapchat was in discussions in February to raise $500 million that could bring the company’s value up between $16 billion to $19 billion. Alibaba’s proposed investment is expected to be outside of that round. The Chinese company has declined to comment on the reported funding.

Alibaba’s vote of confidence on Snapchat underlines how fast a company can grow. In 2014, Snapchat generated revenue by offering ad space to companies like game publisher Electronic Arts, mobile carrier T-Mobile and retail chain Macy’s. LA Times reports said that although profits may still be far off, Snapchat’s relationships with big advertisers have boosted the company’s image.

Alibaba was previously involved in discussions in 2014 to invest in Snapchat but the deal did not happen. The Chinese company continues to expand its core business of e-commerce and invest in finance and entertainment as part of its long-term plan.

You Na, an analyst at Hong Kong-based ICBC International Research, said Alibaba has major plans of expanding in overseas markets including moving into social networks. According to Bloomberg data, a stake in Snapchat would increase Alibaba’s total equity investments to $6.3 billion from 26 deals over the past 12 months.

Alibaba’s investment may just prove to be viable not only from a financial perspective but also on a strategic sense. The company seeks to become a bigger player in online shopping and content creation in the United States.

Analysts have noted that Alibaba wants to enter the realm of messaging. The company invested in U.S.-based Tango in 2014 at an over $1 billion valuation despite the fact that the service is behind other popular apps like WhatsApp, Line and WeChat. For Snapchat, the investment deal suggests new possible sources of revenue. 

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