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.
Earlier on HuffPost:
The Winklevoss Twins
The infamous Winklevoss twins have been giving Mark Zuckerberg grief ever since Facebook's launch back in 2004. The pair and a business partner (more on him later) commissioned Mark Zuckerberg to program a social networking site they had founded called ConnectU, but they later alleged in a lawsuit that Zuckerberg ripped off their idea and launched Thefacebook (later, Facebook) instead. After settling with the company for $65 million in cash and stock, the twins claimed that Facebook misled them about the value of the company's stock. They appealed the settlement <a href="http://www.huffingtonpost.com/2011/05/16/winklevoss-twins-appeal-denied-circuit-court_n_862758.html" target="_hplink">all the way up to the Ninth U.S. Circuit Court</a> -- just one appeal shy of the Supreme Court -- before <a href="http://www.huffingtonpost.com/2011/06/22/winklevoss-twins-facebook-lawsuit_n_882618.html" target="_hplink">throwing in the towel in June 2011</a>.
Divya Narendra partnered with the Winklevoss twins on their ConnectU project during their time at Harvard. Narendra fought Zuckerberg in court alongside the twins and <a href="http://techcrunch.com/2010/05/21/connectu-co-founder-launches-professional-investment-community-sumzero/" target="_hplink">founded his own investor community, called SumZero,</a> before claiming his share of the $65 million settlement with the social network. A plotline in the film "The Social Network," which dramatized Facebook's founding, portrayed the Harvard students' working relationship and subsequent fallout with Zuckerberg.
Here's another name you probably recognize from "The Social Network." The film portrayed Zuck's deteriorating friendship with Facebook co-founder and fellow Harvard student Eduardo Saverin, culminating in a blatant betrayal on the part of Zuckerberg that ended his working relationship with Saverin. <a href="a href="http://www.businessinsider.com/how-mark-zuckerberg-booted-his-co-founder-out-of-the-company-2012-5?page=1" target="_hplink"" target="_hplink">A new piece by Business Insider indicates</a> that Saverin may not have been as much of a victim. As noted by BI, Zuckerberg planned to cut Saverin out of the company because he had failed to secure funding or set up a business model and had used the social network to run free ads for Joboozle, a side-project Saverin had developed. (<a href="http://www.businessinsider.com/how-mark-zuckerberg-booted-his-co-founder-out-of-the-company-2012-5?page=1" target="_hplink">Business Insider also published emails and instant messages</a>, purportedly written by Zuckerberg, that shed light on the methods Zuck used to oust Saverin and dilute his shares in the company.) After a 2009 settlement with Facebook, Saverin retains an <a href="http://www.forbes.com/profile/eduardo-saverin/" target="_hplink">estimated five percent stake in the company</a>. (His original stake was higher than 30 percent.) He recently <a href="http://www.huffingtonpost.com/2012/05/11/eduardo-saverin-us-citizenship_n_1510099.html" target="_hplink">renounced his U.S. citizenship</a>, presumably to avoid the capital gains taxes on the profit he stands to make off Facebook's imminent IPO.
Napster creator Sean Parker, who also served as Facebook's first president, played a huge role in the development of the social network. <a href="http://nymag.com/news/features/mark-zuckerberg-2012-5/index3.html" target="_hplink">According to Henry Blodget's recent profile of Mark Zuckerberg</a>, Parker was also instrumental in securing Zuck's power over the company. However, <a href="http://nymag.com/news/features/mark-zuckerberg-2012-5/index3.html" target="_hplink">as Blodget explains</a>, despite Parker's contributions, Zuck and the company cut him loose a year after his arrival due to his "<a href="http://nymag.com/news/features/mark-zuckerberg-2012-5/index3.html" target="_hplink">party-boy ways</a>."
Owen Van Natta
Zuckerberg also had a hand in the departure of Owen Van Natta, Facebook's former chief operating officer and the <a href="http://allthingsd.com/20080219/owen-van-natta-to-leave-facebook/" target="_hplink">mind behind big deals</a> like Microsoft's $240 million investment in the social network. "His greatest strength was deal-making, not management," <a href="http://nymag.com/news/features/mark-zuckerberg-2012-5/index3.html " target="_hplink">writes Henry Blodget</a>. "In early 2008, in the wake of the disastrous launch of an advertising product called Beacon, Facebook's senior team determined that the company needed a different kind of executive running the business." <a href="http://allthingsd.com/20080219/owen-van-natta-to-leave-facebook/" target="_hplink">AllThingsD's Kara Swisher notes that</a> Van Natta had long been gunning for a CEO spot, which he was unlikely to find a Facebook. "He has said to me many times that he had been hesitant to come to Facebook then, as he had been looking for a CEO job at the time," wrote Swisher when Van Natta left Facebook.