Alibaba in Talks to Invest in Snapchat

By Dow Jones Business News, 
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Snapchat is in discussions to raise a new round of financing from Alibaba Group Holding Ltd. in a deal that could value the mobile-messaging startup at about $10 billion, according to people familiar with the negotiations.

The talks may involve other investors and could fall apart before a deal is reached, the people said. Bloomberg earlier reported the possible investment from Alibaba.

Spokeswomen for Hangzhou, China-based Alibaba and Snapchat in Los Angeles declined to comment.

An eleven-figure valuation for a startup with close to zero revenue and an app that didn't exist four years ago would mark a new high watermark in this era of investor optimism, as financiers compete to buy shares of the hottest technology companies and drive up valuations.

The discussions also highlight the growing allure of U.S. tech startups to China's largest e-commerce giant. As Alibaba prepares to hold an initial public offering later this year, it has made a series of investments in young Silicon Valley companies such as mobile video-call app TangoMe Inc., with an eye toward expanding into the U.S. market.

Alibaba also is battling its homegrown rival, Tencent Holdings Ltd., in fast-growing areas like mobile messaging as they compete for China's more than 500 million smartphone users. Tencent, which operates the popular WeChat smartphone chat application, is trying to offer more e-commerce services to the messaging app's nearly 400 million monthly active users.

Alibaba, whose own messaging app, Laiwang, has far fewer users than WeChat, has struck a number of deals with other Chinese companies since last year to bolster its services for mobile users. Among those deals, Alibaba bought a stake and later reinvested in Sina Corp.'s Twitter-like Weibo microblog business, and bought a stake in mobile-mapping firm AutoNavi Holdings Ltd.

Snapchat makes no money from its mobile app, which sends visual messages that vanish after a few seconds. But the increasing popularity of the service with young smartphone users has sparked interest in the business, evidenced by Facebook Inc.'s acquisition offer for Snapchat of around $3 billion and an investment led by Coatue Management LLC valuing the startup at more than $2 billion, both last year. Facebook signed the largest deal in this space earlier this year, agreeing to buy WhatsApp for $19 billion.

Write to Douglas MacMillan at douglas.macmillan@wsj.com and Telis Demos at telis.demos@wsj.com

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