No, Twitter is NOT Buying Snapchat

Financial journalists got a major scoop on Twitter (NYSE: TWTR) yesterday from an unlikely source – its own CFO, Anthony Noto.
The content of the tweet combined with the fact that it was removed so quickly make it pretty clear that Noto meant it to be a direct message to another Twitter executive rather than a public tweet. What isn’t so clear is what Twitter’s CFO is talking about. The speculation of the day is that Twitter is going to buy Snapchat.
While it makes for great headlines, I hate to be the bearer of bad news: No, Twitter is NOT buying Snapchat. Here’s the deleted Tweet:
The most recently “favorited” tweet by Noto was from the Snapchat CEO Evan Spiegel, adding fuel to the theory that Twitter is about to make an offer to its fellow social media app.
It makes sense that Twitter would be interested in the social sharing platform. Snapchat has a large concentration of female users, strong user growth and is branching out into a potentially lucrative mobile payments service. These are all things that Twitter needs right now, with stagnating user growth, a high concentration of male users and an ongoing struggle to find sources of revenue.
Here’s why I think there is no way that Twitter is going to buy Snapchat.
When Facebook (Nasdaq: FB) announced in February that it was buying WhatsApp for $19 billion the investor community was stunned at the sheer size of the acquisition. In reality, that $19 billion represented little more than 10% of Facebook’s market capitalization. I find it hard to believe that Twitter would be able to acquire Snapchat simply because I think Snapchat has grown too big for Twitter to tackle.
Spiegel is reported to have turned down a $3 billion offer from Facebook in 2013. Even at that valuation Snapchat would be worth 12% of Twitter’s market capitalization. But as Snapchat continues to grow in popularity and see more active users, its valuation is ballooning as well.
In August we found out that Snapchat, with around 100 million active users, raised money from venture capital firm Kleiner Perkins at a valuation of $10 billion. $10 billion makes Snapchat worth 40% of Twitter’s market capitalization. Add in a modest 10% premium and Twitter would have to pay $11 billion for Snapchat, 44% of its entire value.
There is simply no way that Twitter can afford that. A merger, maybe. But an acquisition, certainly not. And the accidental tweet didn’t actually mention Snapchat. It simply said, “I still think we should buy them.”
If not Snapchat, then who is Twitter trying to buy?
There’s also speculation out there that Twitter is trying to acquire a start-up called Mic, also referred to as PolicyMic. The media start-up “wants to be the go-to for hard news and analysis for millennials,” according to the New York Observer.
The company raised $10 million in April, a funding round led by Netscape founder Jim Clark.
It’s unclear what the company’s valuation was at the time. But in the press release announcing the funding, PolicyMic reported 550% user growth in 2013, now reaching 15 million unique readers monthly. However, the company was founded by two friends who both seem actively involved with the business. One is the CEO and the other is editor-in-chief.
I would think that if Twitter’s CFO was tweeting about PolicyMic he would have used the word “they” rather than “him” when he wrote “we will need to sell him.”
Of course, I could be wrong. PolicyMic’s focus on news from many perspectives certainly seems to fit with Twitter’s role in the new media age. PolicyMic could complement Twitter’s efforts and bring in much needed new users.
Maybe we’ll find out after the unnamed Twitter executive’s Dec. 15 or 16 meeting with the company Twitter is trying to buy. But based on valuation alone, it seems obvious that Twitter is not buying Snapchat.

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