Snapchat Is a Big Bargaining Chip

 | Nov 15, 2013 | 5:24 PM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

goog

,

FB

,

aapl

,

msft

,

znga

Just made my third Snapchat today. I adore Snapchat. It enables me to put a caption under my picture and send it to as many people as I want. I know I could do the same thing next to a picture that I've taken as part of a text message, but this is more of a present, and I love it.

So do my kids.

In fact, the last time I was so deeply enamored of something with my kids, it was none other than OMG POP. And before that? Scramble With Friends! That's right, two come-and-gone fads brought to you by none other than Zynga (ZNGA)!

So does that mean Facebook (FB) was nuts when it offered to buy Snapchat for $3 billion? Was it dramatically overpaying? I mean, isn't Zynga the biggest bust of all time because of how OMP POP and all of those "With Friends" games cooled in the public's eyes?

No, I think it's all relative. I believe Snapchat would be a good weapon in the arsenal of any company that wants to be social and mobile, and therefore it's another weapon that you want to keep away from the other guys. We don't know if Snapchat has staying power or not. But if you're Facebook, you sure don't want the competition to get it and find out that it does have staying power. That's pretty much the way it works right now if you're a company that's flush with cash and could get more at the drop of a hat.

Think about it.

If Microsoft (MSFT) or Apple (AAPL) or Facebook had made a preemptive bid for Twitter (TWTR) a year ago for $10 billion, do you think they would be regretting it now? We'd be calling them geniuses.

What happens if Snapchat comes public and takes the money and buys another couple of startups that its people know are attractive? And so what if the individual behind Snapchat is 23? Wouldn't you have loved to give Steve Jobs $3 billion when he was 23, giving you a claim on everything he later developed? Do you think the guy running Snapchat is that much younger than the brains behind Facebook or Google (GOOG)? Nope.

Now, there's a tendency to look at Snapchat through the prism of the original dot-coms and say that Facebook, Twitter, Google and whoever else might be interested in it are paying with "wampum," which was the operative phrase back in the day about the money sloshing around chasing everything Internet.

It's almost as if there's a two-tracked universe between the social, mobile and cloud companies and everyone else, and while everyone else's stock would be destroyed if they paid $3 billion for Snapchat or $4 billion or $10 billion, which is probably how much the public might pay for a smoking-hot property, these companies are immune from overpaying.

And, to a certain extent, frankly, that's true. These companies are flush with cash, and buying Snapchat could be no different from buying a research-and-development lab for next-generation social technology. Of course, there's always the possibility that the business turns out to have the lifespan of a Snapchat itself, which if you're using my settings is five seconds a pop. Worse, perhaps the vast majority of teens aren't using it for wholesome texting and pictures but are instead using it to text pornography that can disappear and never be traced. Maybe others are just using it to pass on insider information to trade off of, knowing that the tip vanishes into the ether, instantly.

All that said, here's the deal: The idea that Snapchat is the poster boy for a bubble, because its 23-year-old owner spurned a $3 billion takeover bid, leaves me cold. If you're in an arms race with Facebook, Google and Twitter, you don't want this property to fall into enemy hands. It's a small token to buy it in order to blunt the competition, and maybe, just maybe, OMG, it turns out to have staying power.

If it does, you're a genius for buying the thing. If it doesn't, frankly, who cares? 

Columnist Conversations

GS has cleared the important hurdle on the way up which increases the odds for an eventual rally towards the 1...
A good quarterly report has sent shares of Calamos Asset Management (CLMS) sharply higher. CLMS was up about ...
Electronics distributor Ingram Micro (IM) reported better than 16% growth in its Q3 sending the stock up about...
Market posting decent day considering Ebola getting headlines again. Believe investors have learned not to pa...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.