Yahoo is reportedly in talks to invest in Snapchat, according to the Wall Street Journal. The deal discussions come on the heels of Alibaba’s IPO, which left shareholder Yahoo with $9.4 billion in cash — in addition to 383 million shares it won’t be selling yet.
The Chinese company’s public offering revealed what investors believe Yahoo’s core business is worth — roughly $4 billion. It also ended Marissa Mayer’s honeymoon period as CEO and triggered a flood of criticism over her approach to running the company. Analysts questioned Mayer’s piecemeal acquisition strategy of content companies like Tumblr, which have not brought in much revenue or elevated Yahoo’s brand in tech.
With a potential [company]Snapchat[/company] investment, one that is rumored to value the company at $10 billion, Yahoo would be making a bold bet. Snapchat hasn’t yet implemented a robust plan for making money, although it’s exploring new features for advertisers. Its popularity, particularly with a young audience, is well known but by no means a sure success in terms of future revenue. But with Yahoo’s core business struggling, and its content acquisitions a dud so far, a risky play on a more popular app might be worth taking.
If reports are true, Yahoo will be joining a fellow fallen star — the estimable Kleiner Perkins Caufield & Byers — in Snapchat’s next round. Like Yahoo, Kleiner Perkins is attempting to regain some of its glory. In recent years it has struggled to predict the biggest hits, missing the likes of Tesla and [company]Facebook[/company], and coming up short on investments like the Segway and Fisker.
A successful bet on Snapchat could give both Kleiner Perkins and Yahoo a much-needed boost — but a failure could further harm their brands.