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CPBJ Extra Blog

Snapchat at a financial crossroads

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In the fall, when Snapchat CEO Evan Spiegel reportedly turned down Mark Zuckerberg's $3 billion all-cash offer the buy the company, I was convinced it was either the smartest or the dumbest financial move of the year.

Either way, it was absolutely the most daring.

A few months later, it’s looking like it will settle somewhere near “dumbest” while still harboring hope of becoming “smartest.”

That’s because the people behind the popular Snapchat mobile application, a photo-sharing app where posted photos automatically disappear instead of staying forever on the Internet, are now dealing with the latest major security breach in the technology and financial world.

It’s a potentially huge blow to the company that prides itself on user privacy. It’s also a breach that can sap the value out of the company in a heartbeat, making that $3 billion offer — which some analysts said was too high in the first place — look like the dangling carrot Spiegel never bothered to grab.

Spiegel took some public head-shaking for not taking the $3 billion, but in a recent, engrossing interview with Forbes, he said he’s got a plan. That kind of reminds me of “Hoosiers,” when Coach Norman Dale is getting severely jeered by his fans for leaving only four players on the basketball court at one time. His only response to the fans? Waving his playbook in the air at them. “Don’t worry, I got this. It’s all part of the plan.”

And to hear Spiegel’s account of how he was treated by Zuckerberg and Facebook when the two sides first met, it’s tough to blame him for blowing off Zuckerberg and drawing a battle line that could play out for the next decade.

But suffice it to say, the people at Myspace are breathing a little easier these days, since they may be removed from the “Make sure you’re not Myspace” punchline as a social media company that went south, fast. If Snapchat can’t weather the storm of this security breach, then it’s not even close — Snapchat eclipses Myspace as the preeminent social media joke.

Snapchat has no sustainable revenue stream; it’s still surviving on (generous) private investments. It hasn’t announced any plans to go public, like Facebook did in 2012 and Twitter did in 2013. It’s in that murky field where everyone knows the company is worth a ton of money — but no one is really making any. It either needs to be bought out, go public or start advertising for there to be any kind of definitive company valuation. None of those three looks to be in Snapchat’s future, so when someone comes calling with $3 billion and you don’t take it, it’s the epitome of risky.

Zuckerberg made his personal valuation of Snapchat at $3 billion, and Snapchat obviously thinks it’s worth more in the long run. That was before the security hack and the bad publicity that went along with it, so I seriously doubt Zuckerberg would make that same offer today.

Now it’s up to Snapchat to go from the worst financial decision ever to the best.

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