Money Morning Staff: Alibaba announced early yesterday that it would invest $200 million in private photo messaging firm Snapchat.
Estimates have the infusion of Alibaba Group Holding Ltd (NYSE:BABA) capital boosting the overall valuation of Snapchat to $15 billion.
That valuation looks unwarranted and may come back to bite Alibaba in the future.
Snapchat was previously courted by Facebook in a $3 billion acquisition bid in late 2013, but it declined the offer and has since raised $650 million in funding on its own.
The Venice, California-based privately held firm has yet to produce significant revenue and is currently banned in China (where Alibaba is incorporated).
It lays claim to 100 million monthly active users worldwide.
Alibaba has made clear a desire to build up its mobile service and e-commerce capabilities and at first glance this investment is in keep with that objective.
Upon closer examination, the future viability of Snapchat to hasten mobile sales is tenuous.
Snapchat has been successful in luring news services such as CNN and ESPN into providing content on their platform.
Alibaba may see this toehold established within Snapchat as clearing a path for e-commerce.
The $200 million funding bears an uneasy similarity to Yahoo’s buck shot approach to targeting companies before -seemingly – ascertaining their method of integrating them into a broader business plan once claimed.
“Shoake in Alibaba, so any aligned interests or views of the viability of Snapchat investment may not be coincidental.