Alibaba Group Holding Ltd (BABA.N) is investing $200 million in photo-messaging app Snapchat, a source familiar with the deal said, striking its latest Silicon Valley deal as the Chinese ecommerce company builds up mobile services.
The investment values the Los Angeles-based company at around $15 billion, according to Bloomberg, citing people familiar with the situation. This places the four-year-old company into the top ranks of privately held startups.
Alibaba, which has seen a steady increase in shopping via smartphones and tablets, has made it a priority to develop mobile services. But its attempt to create a popular messaging app has not had much success, coming up against arch-rival Tencent Holdings Ltd’s (0700.HK) ubiquitous WeChat service.
Tencent, China’s biggest social networking and entertainment company, also invested in Snapchat in 2013, TechCrunch reported at the time.
“We know that Tencent powered ahead of Alibaba in mobile with WeChat, so Snapchat as the ‘it’ company for youth social networks in the West has an obvious appeal,” said Duncan Clark, managing director of Beijing-based tech consultancy BDA.
China’s large internet firms are making these investments partly as a defensive move against each other, with potential for financial returns and partnering in China if regulations permit, said Clark.
“It’s better from their perspective from earning virtually nothing on their cash in the bank. These are small bets for them,” said Clark.
Snapchat, which allows its more than 100 million users to send messages that disappear in seconds, had sought capital to extend its core service. In January, it began carrying videos and articles from mainstream media outlets such as CNN and ESPN, bringing Snapchat into closer competition with Facebook and Twitter Inc (TWTR.N).
A potential allure for Alibaba could be Snapchat’s use as a payment service, as the Chinese company looks to connect consumers and merchants in China and the United States. This includes smoothing the way for cross-border payments.
In November, Snapchat launched a service to let users send money to each other, in a partnership with online payments company Square.
Snapchat did not respond to requests for comment.