FBN Securities analyst Shebly Seyrafi has made the case for why such a deal would make sense and the main reason is that, in doing so, Facebook would eliminate one of the "very few" long-term threats to its business. Data has shown that Facebook is losing a great deal of its teenage users as they move over to Snapchat -- a trend that the social media giant shouldn't ignore.
Shares of Snap were up 0.2% to $22.88 on Thursday, while those of Facebook were up 0.4% to $138.24.
"Facebook should take the Snap threat very seriously, particularly since there are predictions of much stronger growth at Snap outside the 12-to-24 age cohort which, so far, has been the company's key demographic focus," said Seyrafi, who initiated shares of Snap with a Sector Perform rating and $23 price target. So far, no analysts have given Snap a Buy rating.
Snap's stock price could continue to fall, forcing the company to explore alternatives such as being acquired, as Twitter (TWTR) has, Seyrafi said. And at a lower stock price, Facebook could be willing to pay at least $20 billion (or $14 a share) for Snap. It wouldn't be the first time that Facebook has tried to scoop up its formidable social media rival -- Facebook in 2013 offered $3 billion to buy Snap (then Snapchat), but the bid was later rejected. Facebook has also made similar large deals in the past for hot start-ups, shelling out $21.8 billion for WhatsApp in 2014.