Snapchat Parent Sets Sights on China in Face of Current Operating Ban

Snapchat parent Snap, which on Thursday welcomed Disney (DIS) to its list of content creators, is eyeing China as its next frontier despite the fact that the popular photo-messaging app is banned from operation in the world's second-largest economy. 

The company said earlier this week that it has opened a new research and development technology office in Shenzhen, China, where its first venture into hardware -- namely the video-capturing Spectacles sunglasses -- are assembled.

With 700 million internet users, China could be a lucrative market for any tech company. But Snapchat is banned in China, along with the likes of Facebook (FB) , Twitter (TWTR) and Alphabet's (GOOGL) Google. Snap confirms that the company currently has a small office there with fewer than 20 employees.

News about Snapchat's possible foray into China was first picked up by Chinese online news and game publishing site NetEase (NTES) from a job post on Wechat, a one-stop Chinese messaging app owned by the biggest Chinese tech company, Tencent. In the job post, Snap invites experienced engineers to join its first core team in China. It said an ideal candidate would have previous experience working for one of China's three tech giants: Alibaba (BABA) , Baidu (BIDU) and Tencent.

With an estimated valuation of $25 billion and a much-anticipated IPO in March 2017, Snap is seen as one of the hottest tech companies this year. However, experts are not as optimistic about the prospect of Snapchat gaining traction in China where its South Korean clone Snow is not blocked. Snow is developed and owned by South Korean internet company Naver, which also owns the popular chat-messaging app Line (LN) .

Snow has amassed more than 80 million downloads, making it one of top downloads in Apple  (AAPL) iOS and Android phones this year in Japan, Singapore and South Korea, according to Bloomberg. The Snapchat-like app is also cornering the Chinese market. The company was reported to have earned acquisition interest from Facebook, Tencent and Alibaba.

"It will be real tough for Snap to gain any type of presence in China. There simply is no real need," said Shaun Rein, Managing Director of Shanghai-based China Market Research Group. "This could also be an initial foray into the country. Google still has a presence here for research and then they sell ad space to Chinese companies trying to get access to western consumers. Snap could eventually do the same in China."

Despite heavy competition from its South Korean clone in Asia, the company seems to be doing very well in the U.S., its home market. Disney announced on Wednesday that its television arm will create shows for Snapchat in order to reach younger audiences starting in January of next year. The first show from Disney will be a three-to-five minute follow-up for ABC's "The Bachelor," debuting Jan. 3 and viewable in Snapchat's Discover section.

Although financial terms of the deal weren't disclosed. Snap's latest partnership with Disney comes on the heels of a variety of advertising and content agreements with Viacom (VIAB) , Comcast's (CMCSA) NBCUniversal and Time Warner's (TWX) Turner Broadcasting System.

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