Seriously Smart: Facebook’s offer to buy Snapchat for $3 billion
Who would have thought a simple website where college students could upload personal profiles would reach unprecedented heights, soaring to become the social media tour de force known as Facebook? Following in a similar flight path is a newer application known as Snapchat; growing in popularity by leaps and bounds. Mark Zuckerberg, CEO and founder of Facebook, has recently offered the founders of Snapchat $3 billion for their popular mobile application. And not without good reason. Facebook has been slowly declining in popularity as younger generations are turning towards other forms of social media.
Facebook Competition
Mark Zuckerberg knows that Facebook is in constant competition with up and coming applications. His nerves landed him the application Instagram, which he bought for $1 billion last year. This was a smart decision because Instagram posed as a real threat to Facebook, positioning itself as a trendier mobile photo sharing application geared toward younger people.
Applications such as Instagram and Snapchat are becoming more appealing than Facebook; which is not very popular among younger generations. Young people are always looking for the next best thing. They have the most influence on social media as technology becomes more advanced.
Facebook Financials
So, why wouldn’t Mark Zuckerberg offer Snapchat $3 billion for their mobile application? Some think he’s crazy to attempt to pay 3 times the amount he paid for Instagram. In actuality, it’s a very smart move. He needs to reach out to younger people and he cannot gain their attention as effectively through Facebook. The majority of social behavior is done through mobile devices; and Facebook isn’t fit to be 100% mobile friendly he knows this. He must do everything he can to reach out and hold on to the younger generations. Each year the user base of Facebook will get older and older. Eventually, it is going to fade out and it’s always smart to acquire backup plans.
In recent news, according to an article in Forbes.com, Facebook has plenty of money for the offer:
- Facebook is worth nearly $120 billion, and can use their stock as currency for any future trades. They did, however, offer Snapchat $3 billion in cash.
- Facebook’s balance sheet shows over $9 billion in cash and marketable securities
- In the first 3 quarters of 2013, Facebook generated $3 billion in cash flow from operations.
Facebook’s current financial position agrees with the offer to Snapchat for $3 billion. Although the founders of the mobile application declined the offer; it’s likely they are prepared for the next bid. Snapchat is becoming the next big thing; and Mark Zuckerberg knows that it will be worth far more than $3 billion over the next few years. If he didn’t make the offer, someone else would. A powerful company such as Google will most likely be trying to make an offer with the Snapchat founders in the near future.
Mark Zuckerberg knows a good thing when he sees it. Making an offer of less than 5% of what Facebook is worth doesn’t do much damage to his pockets. It is believed he will come back in the near future with another offer; a higher one. The Snapchat owner’s are just 23 and 25 years old; and just may very well decide to take the next offer that comes around. Why wouldn’t you want to be billionaires in your mid-20’s? When you fall under the Facebook limelight, this kind of thing can happen overnight.
