Marissa Mayer has done wonders for Yahoo! Though let's not forget Jerry Yang, either. The former Yahoo! co-founder slyly invested $1 billion in the Chinese bombshell Alibaba in 2005 for a 40% stake in the company. In 2012, Alibaba agreed to buyback half their shares at a $7.1 billion price tag. I'm not done. As of 3 weeks ago, Yahoo! has made close to $10 billion from Alibaba's recent IPO. Yes, the same Alibaba that is now worth $225 billion 3 weeks into being a publicly traded company. It's as if Alibaba felt bad about not being included in the "bubble" speculation talk when it was happening and now it has arrived. As fashionable late as ever.
Now, continuing her string of acquisitions that include hip and tech-savvy start-ups like MessageMe and Summly, Marissa Mayer has helped Yahoo! invest $20 million into America's favorite start-up darling (it only lasts for 10 seconds!), Snapchat. The move comes at a curious time as pressure mounts from some head honcho activist investor firms (Starboard) for Yahoo! to merge with AOL, another stagnant internet behemoth from decades past. Starboard's stake in Yahoo! is undisclosed but assuming it wants any control in board maneuverability or acquisition talk, the stake would have to be over 5%. Mayer's acquisitions in 2014, as eclectic as they have been, are starting to gain consistency and cohesion. 3 out of the last 6 start-ups Yahoo! has bought have been mobile related. Both Yahoo! and AOL have been floating around due to the exterior services that each company provides. Fantasy sports, Huffington Post, and TechCrunch are still generating revenue for companies like AOL at high clips. AOL's terrific earnings report from August though was due to third party platform advertising which jumped an ungodly 60% for a revenue total of $457.1 million for the second quarter. For Yahoo!, Snapchat would be wise a investment for a company flatlining (or closer to nosediving) in the search business and sustaining moderate YOY growth in advertising dollars. Yahoo! cannot beat Facebook in terms of social media, nor Google for email or search.
These are problems. But investing in Snapchat allows them to have a piece of the pie in a company whose valuation should now be in the $10 billion range. Snapchat surprisingly (or not) rejected $5 billion offers from both Google and Facebook earlier this year. A return on investment identical to Alibaba will be near impossible and furthermore unnecessary. The strategy here is simple: if you can't overtake or compete with Facebook, Google, and even Amazon, then why not invest in their competitors? Snapchat's greatest asset is that it has data to our phone numbers. How to monetize the site will become a tricky matter but there are banner ads possibilities on some of the apps features. At 40 million users and close to 700 million snaps sent per day, Snapchat is now a social media wrecking ball. Partly to thank was their first mover advantage in addition to their simple and easy to use interface. $20 million seems like a measly stake in a company with no revenue model or positive cash-flow aspirations in the near future. But the same things were said five years ago when the Alibaba investment was made. We all know how that turned out.
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