Alibaba Group Holding Ltd (NYSE:BABA) has turned a lot of heads since its very successful IPO in 2014. This company is a monster in China, which has a huge cash reserve, unlike many other tech companies in United States. What should they do with that Money? Make smart investments would be a sensible answer to that and some reports suggests that Alibaba Group Holding Ltd (NYSE:BABA) has made $200 million investment in Snapchat. Only time will tell if this is a smart investment from Alibaba Group Holding Ltd (NYSE:BABA) or not. Meanwhile, CNBC’s Dominic Chiu and Jag Bath, Senior Vice President of Product, Retailmenot.com discussed about Alibaba Group Holding Ltd (NYSE:BABA)’s investment in Snapchat on CNBC.
Chiu pointed out that valuation of this investment could be $15 billion. Bath accepted that it’s a huge deal. He added that Alibaba Group Holding Ltd (NYSE:BABA) is the largest tech company in China and unlike large tech companies in US, Alibaba Group Holding Ltd (NYSE:BABA) is sitting on a huge pile of cash. He said that they got to something about cash like acquisitions or investments.
“[…] We have seen investments like this in the past. Microsoft made an investment in 2007 in Facebook. And actually more recently Yahoo made an investment in Alibaba of about $1 billion for a 40% stake in 2005. Recently, when Alibaba went public, they had a hugely successful IPO, which resulted in $40 billion return for Yahoo. I think when Alibaba look at a company like Snapchat, they are certainly looking at this from an investment stand point and putting that cash to good use, but also it’s a great learning experience for them,” Bath said.
Bath mentioned that Snapchat has a huge user base, close to 200 million. He feels that this would be a great learning experience for a company like Alibaba Group Holding Ltd (NYSE:BABA), especially when they invest deeply in mobile services in China and US.
But what can Snapchat do differently from this investment? Bath thinks that Snapchat faces a huge challenge in monetizing the user base and he feels that they could use the investment from Alibaba Group Holding Ltd (NYSE:BABA) and other investments that they received recently to improve the technology and infrastructure. He added that they need to be cautious in increasing their ad revenues by advertising without disrupting the user experience in Snapchat.
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