Would you turn down $3 billion cash if Facebook wanted to buy your company? According to a report from The Wall Street Journal, Snapchat did just that. The company has other suitors, apparently, and investors who want to dump enough money into the company to value it at $4 billion. And, according to sources, CEO Evan Spiegel is convinced that the app will grow enough to justify an even higher valuation down the line.
In other words, if Mark Zuckerberg wants Snapchat, he might have a shot later. But it might come with a higher price tag.
There has been a lot of commentary on just how wise it was for Snapchat to turn down Facebook’s $3 billion offer. Ben Parr thinks that the company’s founders are shooting for something bigger than a high payout: legacy. TechCrunch’s Matthew Panzarino seems dumbfounded that Snapchat didn’t take the $3 billion and run. I think what surprises me the most is that Facebook was putting such a hefty valuation on Snapchat in the first place, because, in terms of stickiness and utility, I don’t think Snapchat now is more valuable than Instagram was last year.
Facebook’s $1 billion acquisition of Instagram in 2012 made big waves. After all, Instagram wasn’t what you’d call a cash cow. It had 27 million users at that point but wasn’t actively trying to generate revenue. So a $1 billion valuation, which priced Instagram higher than The New York Times, was a pretty big deal. The fact that Facebook was willing to pay three times that amount, in cash, for Snapchat is an even bigger one.
I think it’s safe to say that Instagram paved the way for that kind of pricey acquisition to become the norm, and I’m sure this isn’t the last one we’ll see. We’ll be keeping an eye on Snapchat to see if the company does indeed raise additional capital and, if so, what the company is valued at once it wraps up. Until then, stay tuned.