Snapchat allows users to send images and videos that “disappear” seconds after being viewed.
The company is said to have rejected a $3 billion takeover offer from Facebook and other tech behemoths, including China’s Alibaba and Tencent groups in recent years.
Yahoo and Snapchat refused to comment.
According to the Wall Street Journal, Yahoo may invest about $20 million in Snapchat’s next funding round after cashing in from its stake in e-commerce giant Alibaba.
In 2005, Yahoo co-founder Jerry Yang bought a 40% stake in Alibaba for about $1 billion. It sold part of that stake during last month’s initial public offering, earning more than $9 billion before taxes.
Yahoo has been on an acquisition spree under chief executive Marissa Mayer, who has been looking to move it away from its reliance on search and make it more of a content provider.
Since joining in 2012, Marissa Mayer has overseen more than two dozen deals aimed at turning the company around.
However, she has recently come under pressure from activist investor Starboard Value.
Starboard Value has been calling on Yahoo to halt its spending and consider combining with online rival AOL.
Last week, Yahoo bought mobile-chat application MessageMe, which allows users to ping one or many friends on their smartphone using emoticons and stickers.
Marissa Mayer also acquired blogging service Tumblr for about $1 billion last year.
MessageMe has said it will shut down in November, so that its eight-person team can work on mobile products for Yahoo.
Snapchat was created by a group of students at Stanford University in 2011 and quickly became popular among teens.
Facebook is now testing a similar feature that allows users to schedule the automatic deletion of their posts ranging from one hour to seven days.
Snapchat, which has little to no revenue, reportedly rejected Facebook’s $3 billion offer last year for being too low.
However, a tech boom in Silicon Valley has seen several privately owned start-ups receive eleven-digit valuations, including house-sharing company Airbnb and private car-booking application Uber.
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