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Alibaba Group Holding Limited (BABA ) has reportedly closed on an investment in Snapchat Inc. valued at $200 million. What may be surprising is the Chinese e-commerce company’s interest in Snapchat. Until recently Snapchat did not earn any revenue, though users of the photo-messaging app may be spread all around the world. Though talks about the investment were rife earlier, the investment did not materialize until recently. Both Alibaba and Snapchat have not made a public comment about the investment, though sources have confirmed the investment.

Alibaba’s $200 million investment in Snapchat will also have a competitive advantage since Tencent Holdings Ltd. (TCEHY ); Alibaba’s rival is also a Snapchat investor. Besides, Alibaba is in the process of creating a new messaging app to counter Tencent’s app, WeChat. Now that the investment is through, Alibaba could have a hold in China’s messaging app division. The feature that Snapchat provide helps in privacy and mass-communication thus going hand in hand with the censorship in China. Snapchat was blocked in China since the Chinese government believed that personal data of its citizens were stores on servers based outside the country. Alibaba therefore can now turn tables, thus benefiting investors. What could now make the Chinese government jittery is the launch of Discover, the new video interface of Snapchat.

Global Spread

Alibaba Group Holding Limited, with the investment gets a huge opportunity to spread its wings in Europe and North America. The company invested a whopping $215 million on Tango. the messaging app in 2014. Since most of Snapchat users, around 90% to be precise, are based in Europe and North America, Alibaba can establish its base there. Till date, Alibaba has not integrated their services with the tech companies it has invested in. However, the Chinese e-commerce company’s investment in Quixey was an exception. Quixey now provides app queries on the mobile Operating System developed by Alibaba.

A look back at Snapchat and Alibaba

Alibaba has its headquarters at Hangzhou, China and provides C2C, B2C and B2B services through web portals. Net assets were valued at CN¥ 111.54 billion in 2014 and operating income was reported at CN¥ 24.80 billion in 2014. For the fiscal quarter end December 2014, the company earned $0.55 per share, but missed the $0.62 consensus EPS forecast. Revenue increased 40% to $4.22 billion, although the estimated revenue was $4.45 billion. Snapchat, on the other hand, was released later in 2011. Available in different languages like English, Spanish, Korean, French, German, etc. Snapchat was so confident of itself that it refused a takeover of $3 billion from Facebook Inc. (FB ). Though the photo-messaging company hasn’t made money yet, they plan on raising funds through advertising, selling virtual goods, etc. It seems that the company’s efforts are paying off as Tencent, Alibaba, etc. are investing in the company.

Investor’s Take

Although it remains a mystery as to why Alibaba is making an investment in Snapchat, one thing can be said for certain- The China’s shopping giant is making news for investing in any tech firm that needs funding, mostly US tech companies. Even investors are baffled at Alibaba’s buying-stake spree. The company has purchased stocks from online retail sites to taxi app-making companies. Alibaba has invested in Tango, a messaging app along with ShopRunner. an online retail site. The online shopping company has also shown an interest in Snapdeal. an online marketplace based in New Delhi, India. The company will soon have a good hold of the US cloud computing market as the company has established its new data center in Silicon Valley. Now that the company is on an investment spree, investors can expect diversification and high returns from the company.

About the author:

We are a group of analysts exploring and analyzing different domains of business and writing reviews based on information available in public domain web portals. We do not hold any stock or investment position in any of the companies that we write for.