Snapchat, a smartphone app that has yet to make any money, turned down an offer from Facebook to be bought for $3 billion, according to The Wall Street Journal. That's "billion" with a "B." Did we mention that Snapchat has exactly $0 in revenue?
The Journal's Evelyn Rusli and Douglas MacMillan got the scoop after talking with "people briefed on the matter." Last year, Facebook offered Snapchat a $1 billion buyout and, after being spurned, decided to launch its own ephemeral messaging app called "Poke," which flopped spectacularly.
Evan Spiegel, Snapchat's 23-year-old founder, apparently turned down this latest offer for triple that amount in "recent weeks," according to the Journal. Created in 2011, Snapchat lets people send each other photos and videos that disappear a few seconds after being viewed.
So what possesses a man not old enough to rent a car from rebuffing the chance to be a billionaire three times over, overnight? The answer, as is usually the case in these situations, is even more money. Earlier leaks from within the company suggest investors looking to buy a stake in the app think it's worth $4 billion. Snapchat thinks that its rocket-like growth -- it went from 200 monthly users in June to 350 million in September -- will continue, and will let it justify an even higher valuation.
Facebook's motivation to spend that kind of money (it would have been an all-cash deal) is straightforward: It has a teen problem. After long denying it, Facebook finally acknowledged last month that younger members are in fact using the network less. (As Facebook exec David Ebersman very awkwardly put it during an earnings conference call, "We remain close to fully penetrated among teens in the U.S.")
Snapchat has adolescents, many of whom don't want to leave any digital footprint for parents and teachers to see, rapt in a way Facebook doesn't.
For perspective: In June, Yahoo announced it bought Tumblr for $1.1 billion. It had 300 million monthly users, approximately the same number as Snapchat, but got there after four years of existence. Snapchat, which as been around for a little more than two years, has better potential growth potential in investors' eyes.
A more apt comparison might be Instagram, another profitless app that Facebook successfully bought for $1 billion in April 2011. About 30 million Instagram accounts had been set up at the time, but since it reached that number in less than two years, Facebook saw the same upside in Instagram that it now sees in Snapchat.