The chance of a potential buyout by Facebook Inc. offers support for Snap Inc. stock. But Would Facebook really want to buy Snapchat?
Venice, California, based Snap Inc (NYSE:SNAP), parent of the popular photo-sharing app Snapchat has been listed on the NYSE for less than a week. In the week immediately following the Snap IPO, a number of Wall Street firms issued initial commentary on SNAP stock. And well, the Wall Street commentary has been far from encouraging for SNAP bulls. The latest to join this deluge of Wall Street chorus was Shebly Seyrafi from FBN Securities, who believes that Facebook Inc (NASDAQ:FB) could be interested in buying out Snapchat. But Would the Menlo park, based Social Networking giant really consider making such a bid?
A $20B Snap Valuation Could Attract Facebook
FBN Securities analyst Shelby Seyrafi initiated Snap stock at a hold rating with a $23 target. More interestingly, the analyst believes that a per share price of $14, which would equate to a $20B valuation, is a floor for the SNAP stock. Why? Well, a $20B valuation could get Facebook interested, believes the Technology & Internet Research analyst at FBN Securities. Seyrafi believes Snapchat is a "highly innovative" company with an attractive demographic user base. As per the analyst, the photo sharing platform has been successfully drawing ad dollars away from Twitter (NYSE:TWTR), the San Fransico, California-based micro blogging platform.
As reported by Barron's Teresa Rivas, the analyst wrote: "One of the key points that the bears on SNAP may be missing is that we believe that FB would love to acquire the company, and it could be willing to pay at least $20B+ ($14/share) for the asset. If this is so, then investors in SNAP effectively have a “put” at around $14/share. Remember that FB paid $21.8B for WhatsApp, a company which, although it had more users than SNAP, was not generating any real revenue. There are several reasons why FB might make a bid for SNAP at the right price: 1.) FB already tried to acquire SNAP (for ~$3B in 2013), and 2.) FB has the balance sheet and cash flow to finance such a deal, and 3.) Such a deal would remove one of the few long-term threats to its business." So, Would Facebook really be interested in making a bid for Snapchat?
Facebook Bid For Snapchat
Let's first understand why Facebook acquired WhatsApp. WhatsApp is an instant messaging platform (communication tool), more like SMS (short message service) rather than a full-fledged social network platform like Facebook. Hence, the product was significantly different from the core Facebook product, catering to different needs of the users. And yes, WhatsApp was a leader in the instant messaging space.
On the other hand, the similarity between Instagram and Snapchat isn't hard to figure out. They are both photo sharing platforms with a similar user experience, which has converged recently, given the aggressive rate at which Instagram has been imitating features of the smaller photo sharing network.
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