Buying cool is the best way for big companies to stay cool.
Snapchat rightly believes in itself, and now it’s getting bankers to bet on that vision without selling its precious equity. Snapchat has secured a line of credit led by Morgan Stanley, potentially with other banks participating, according to Recode.
Snapchat can borrow against that credit line and pay it back later if it needs cash in the lead up to a likely 2017 IPO. That will give it flexibility to go public when the time is right without worrying about having to raise another round of equity financing to pay its expenses. It already raised a $1.8 billion Series F earlier this year.
But the other opportunity afforded by the credit line that today’s report doesn’t discuss is that Snapchat could use the credit line to make acquisitions.
Snapchat bought Looksery to power these animated selfie lenses that kept it the coolest thing in social
Snapchat has already proven itself a prolific buyer. In 2014 it acquired smart glasses developer Vergence Labs for $15 million to jumpstart its hardware division, and QR code startup Scan.me for $50 million to power its QR Snapcodes. Snapchat bought augmented reality filter startup Looksery for a rumored $150 million last year to create its animated selfie lenses.
This year Snapchat bought 3D selfie marker Seene, and personalized Bitmoji sticker startup Bitstrips for a reported $100 million. And it’s in talks to acquire mobile search and social planning startup Vurb for over $110 million.
CEO Evan Spiegel seems to have taken a note from Facebook, the company he himself refused to sell to. By acquiring new products, even at steep prices, Snapchat can stay ahead of competitors and avoid growing stale.
Snapchat quickly integrated its latest acquisition of Bitmoji to let users send personalized avatar stickers
Though it’s unclear how much credit Snapchat has to play with, its loyal teen user base and budding advertising revenues are worthy of Wall Street’s faith. It’s supposedly on track to earn $350 million in 2016, and wants to be a $500 million to $1 billion business in 2017. If it can maintain its cool, it could continue earning the big bucks and pay back any cash borrowed later.
Having the extra credit line gives it the funds to buy startups it thinks could keep it at the forefront of digital culture.