NEW YORK (TheStreet) -- How much does a disappearing picture cost? To the owners of Snapchat, a lot more than $3 billion, if reports from The Wall Street Journal are proven true.
Facebook (FB - Get Report) allegedly offered at least $3 billion to acquire Snapchat in discussions with the company over recent weeks but has since been rejected, according to WSJ sources. The recent offer is triple the value of a previously-reported acquisition attempt three weeks earlier.
At just two years old, the app has yet to generate any revenue as its photo messaging service, which allows users to view pictures for a limited time, is completely free to download and use.
Co-founder and CEO Evan Spiegel is reportedly turning down offers until next year on the hope the service will have a greater number daily active users (DAU), cause for a higher valuation.
An acquisition of the app, popular among teenagers, would be a crucial strategic peg for Facebook to stopper the leak of younger users to alternative social networks. In its recent third quarter, the social network said of its 728 million DAUs, use among teenagers had declined, a comment which rattled appetite for the stock. Facebook-owned Instagram, however, is increasingly popular among the demographic.
The reasons Facebook would want Snapchat (to reiterate, a company with zero revenue) is in the details. In October, the app maker said it supports 350 million "Snaps" sent each day, a 3,400% increase from a year earlier. Though Snapchat has never released its exact number of users, a Forbes estimation puts the total in the U.S. at 26 million based on data from a Pew Research Center study. With its rampant popularity among teenagers, these are figures Facebook can't afford to ignore.
At the time of publishing, Snapchat had not responded to requests for comment. A Facebook spokesperson said the company would not comment on speculation.
By market close, Facebook had gained 4.5% to $48.71.
TheStreet Ratings team rates Facebook Inc as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate Facebook Inc (FB) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- FB's very impressive revenue growth greatly exceeded the industry average of 9.4%. Since the same quarter one year prior, revenues leaped by 59.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- FB's debt-to-equity ratio is very low at 0.04 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 10.37, which clearly demonstrates the ability to cover short-term cash needs.
- Powered by its strong earnings growth of 950% and other important driving factors, this stock has surged by 132.34% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- When compared to other companies in the Internet Software & Services industry and the overall market, Facebook Inc's return on equity is below that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: FB Ratings Report