Which is why I can't for the life of me understand why people value companies like snapchat so highly when they are simply the current fad. Then you see oh they lost $20 Billion since their IPO and you wonder why people with that much money can't see what's clear as day to me. In 5 years, snapchat will be myspace, I'm willing to bet on it.
This is entirely true. I don't understand Snapchat's valuation in the slightest, which is why I mentioned it here in comparison to this acquisition. I'm yet to see how large audiences and advertising revenue are an answer to anything; see MySpace and Zynga, both of which fulfill(ed) those criteria. Snapchat seems like an easy service to clone in theory relative to, say, a YouTube or a Twitter-certainly Facebook could do it-so what are they bringing to the table exactly? Where does their value come from? A bit off topic here anyway. I just thought it was a nice comparison.
Snapchat is already a very rich company. The founders are probably indifferent to the wealth at this point.
I also think a lot of people (myself included) find it hard to comprehend how much money can be made selling stickers in messaging apps. It's mind-boggling, and Snapchat, processing 350+ million messages a day, is in a very strong position to leverage that eventually.
All that said, I'd accept a $3B cash offer in a heartbeat if I were in their shoes. I wouldn't be confident in Snapchat's long-term survival. It might double its user base in the next year and then swiftly die when the next fad comes along. I feel that timing will be critical here. If they wait too long, they could lose it all.
Yeah, I don't see it. This is Dot Com Bubble 2.0. Nothing but hype. I don't care how many teenage eyeballs SnapChat has. You don't suddenly become Tencent or LINE or whatever tomorrow's out-of-the-ass comparison will be. SnapChat is going to have an uphill battle moving their users to anything that is not a simple picture transferring app. And they only have so much time left. If there is one thing teenagers do not do, it is use something past its trend expiration date. The fact that SnapChat hasn't been monetized yet probably means it's already too late and they have no clue where they are going with it, other than hoping to get bought out for an even more outrageous sum of money.
Their revenue ($400MM) is impressive for a messaging app, but honestly, the valuation it carries at this point is nuts. It's just an app and I personally don't believe it has a sufficient economic moat to justify that. Where's the ecosystem? How can we bolt on value from having that audience? Unlike Facebook, we won't have a billion people using Snapchat any time soon.
Then again, I didn't believe Instagram was worth $1bn when acquired either, and looking back, was wrong on that. But there's a massive disconnect between the current valuation of Snapchat, and the valuation of Instagram (when it was acquired).
Sorry, tuned out at $100 Billion. This is doing keg-stands of your own Kool-Aid.
If you think Snapchat has the same macroeconomic value to the world as Intel, Cisco, or McDonald's... Then you've lost the ability to evaluate a technology business.
I'm not sure whether to accuse this of being shill or to systematically prove how flaky the argument is. The fact is that it doesn't save photos is as much lack of a feature as it is character. The users of this app know how to take a screenshot... It's the ICQ of a different 3 years worth of teenagers that will get stomped by the next messaging app that is different from the one other people used for the past 3 years.
Snapchat is valuable because of demographics. Unfortunately those demographics grow up quickly, and the ones that replace them will rebelliously reject what preceded them just like teenagers have done for the last 50 years.
The fact that they are worth $18bn now is nothing but a prime example of the times. Mind you I know the company I'm in. VCs invest based on their bet and the reason that valuation sticks is more marketing than it is reality.
It's clear from your comments throughout this thread that you're biased against Snapchat. Regardless of whether or not Snapchat's long-term prospects are strong, you're not debating this well.
First you compared Snapchat to a completely different industry (automotive) to imply it has an inflated valuation (as though tangible products and heavy manufacturing somehow make a company more legitimate). When a commenter replied with an excellent rebuttal in favor of Snapchat's market position, you instead made the argument that Snapchat does not contribute long-term value to society.
When the parent commenter criticized this viewpoint by drawing a connection to HBO and countering that not all businesses need to change the world, you claimed that people don't need to be any more connected than they were before Snapchat, since they had things like Facebook, Twitter and texting. Why build different things? Why not just be content with the communication platforms we have now? How about we just don't develop things people clearly desire because, "eh, fuck it, they've got general ways to talk to each other already."
Finally you circled back around to being incredulous that a company with only 200 people could be worth more than entire industries and "supply chains." Of all the market analyses available, like margin comparisons or growth potential, you chose to zero in on the number of literal employees as some sort of indication of impact.
How long are you going to move the goal posts? You're one of the most active commenters in this thread but your rhetoric, particularly the bit involving the automotive industry, reminds me very strongly of the way in which people who are too set in their worldview can't fathom the value of new and different technology.
Judging by the political valence of your "VC gold rush" comment, I assume this is where your bias comes from. That and the automotive comparisons lead me to believe you're deeply uncomfortable with the idea that a small number of relatively wealthy, skilled elite can completely dwarf industries built by the comparatively unskilled masses all the while enjoying cushier jobs, better social status and wild employability (to put it as starkly as I can).
Follow this thinking deeply enough and it could even be expressed as simply as, "It's not fair." But that's leverage for you.
If you want to really debate about the future value of Snapchat, why not add some real nuance to the discussion and talk about its advertising platform's advantages (or disadvantages) compared to Google and Facebook?
I have yet to speak with anyone who thinks Snapchat's valuation is realistic and that their business model will sustain them. When I see this I just think of Twitter all over again.
I would love to hear arguments supporting Snapchat though.
Snapchat has achieved the kind of user acceptance that only a handful of tech companies ever do. Kudos to them. However, it is a feature, not a product. The next great thing will come along and claim its notoriously fickle user base as fast or faster than Snapchat itself arrived on the scene. The barriers to entry are so low as to effectively be nonexistent.
Evan grew up rich and has family money to fall back on if he fails, so perhaps he can afford to gamble for a bigger payday. The problem is that he is gambling with the financial futures of his investors and employees as well. In my opinion, a bet that Snapchat will ever be valued at more than $3 billion is a long shot, and there is a greater-than-zero chance that the company will be worth nothing two years from now.
Glad to see you're the leading authority on this matter. Tell me, from whence did you judge that Snapchat is "ephemeral"?
How did you manage to outplay the dozens of very smart, very experienced, and very successful VCs and investors that have spent dozens of man-hours thinking about whether they should or should not dump millions of dollars into Snapchat? You are aware, that, as of now, Snapchat has raised more than $100M total in funding, from initial seed to it's Series C, and that some of the biggest players in SV have offered to buy it for upwards of $4B? I'm quite shocked to see that your little quip regarding it's long-term potential has somehow out-qualified all of this money and time and thought that went into it's current state. Especially since investors value long term potential over everything else : the whole deal with economics is finding value before anyone else does, otherwise you're just a bandwagoner. Early bird gets the worm, so the most successful early birds are those that look the furthest for the worms with the highest long-term potential.
They berated Google for making a bad decision when they acquired YouTube and they called Facebook a trend that was just "MySpace for college kids". Maybe you're not in the right demographic for using Snapchat, so that's why you don't see it's long-term potential?
SnapChat is starting to sell ad space. So I'm sure they'll generate hundreds of millions of dollars and end up being fine. A company that large doesn't just fail over night. Founders and early employees are set for life.
The real tragedy imo is that these companies are idolized by the valley hive mind. Smart, young developers seem to be more interested in building social-mobile-ad-generating-app-number-twomillion than work on something worthwhile.
Worthwhile being healthcare, education, space travel, energy, etc. Not some viral app that sells ads.
I used to think snapchat was a fad too. I scoffed at the 4 (?) billion dollar offer they turned down. But now I am sure it is not and that its worth more.
Snapchat is cool and tomorrow it can be uncool. They have around 30 million users and valued $3 Billion is insane. Instagram was worth $1 Billion because of it's system and users but SnapChat doesn't deserves to be a Billion dollar company.
It a good investment for investors because they can always use exit strategy. SnapChat will eventually use advertising and then diversify to other products if it doesn't gets buy out.
Honestly I am afraid that Snapchat will suffer the same fate as MySpace or DIGG once the younger generation finds something new (look at who uses google+, no one and I am not talking about your techy friends). We can already see young teens are leaving facebook. To be honest I stopped using it once my parents and other older adults started joining and that was 2-3 years ago.
Snapchat is mostly a texting app. Yes - their value prop is around 'sharing moments' and they do it well. Also - they have other ancilliary offers.
And yes - they are the kings of college aged-students, and the 'cool thing' for now.
But - texting is to some extent a commodity, and 'cool brands' fade. Facebook used to be cool - then they turned into a utility. Twitter was cool, and now it's at utility stage as well.
And - do they really have the capacity to grow to 1.5 billion people? Facebook eventually had 'your parents'. Snapchat will not. Twitter has tons of regular folk. Snapchat probably will not. So there's a limit to their growth.
The question is - can Snapchat exist as a utility when the buzz dies down? Will they anchor themselves as 'the' texting platform, do they have that kind of incumbency?
Snapchat is going nowhere anytime soon, and it's entirely feasible they stay relevant for a long time.
But - the valuation is pretty dam high.
In order to justify a 17B valuation it means you have to produce 17B in profits at todays dollar value. That's a lot of money. It means 1 B in profits in the bank or back to shareholders for 17 years :).
So it's a pretty big valuation to live up to, even if they are fairly successful.
But they are definitely cashing in at exactly the right moment. They hype is at a nadir. They can't get any cooler, though they could break through to other demographics/countries/markets etc which would keep investors happy.
There is no way Snapchat is worth $3 billion. I don't think the idea is even worth $100 million. The funding round alone was insane. I don't know what is going on in the valley and San Francisco these days, but I guess these startups have to be funded somehow and these VCs want their return so everyone will be rooting for transactions like these to happen.
If I had stumbled onto Snapchat and Facebook offered me $3 billion, I would've grabbed the money before I could blink. I'd probably even throw them a party to thank them for being so nice.
There will be too many imitators, and this privacy problem will be solved in other ways. It will all cause Snapchat to die off. It will never realize these lofty valuations.
Why doesn't it make sense? Snapchat has become massively popular on mobile devices, and much moreso than even Facebook and Twitter in terms of engagement and growth.
People had literally this exact same sentiment about Facebook in 2008-2010. ("It's just a photo sharing site for kids...") And they also suggested adding a subscription service. Instagram sold before they got along to integrating ads (they had less than 20 employees), but that product was/is on a similar trajectory. There doesn't exist a single large social network that directly charges users, so I don't think you can just assume that's a valid strategy.
When you're on a wave like this, you ride it. They likely sold <15% of the company for that $100MM. Sure, the current product is silly. But it's unbelievably sticky for users and really fun. If you don't understand this, I bet haven't used it at length. It feels surprisingly like Twitter did early on. A new medium. A new protocol. A new way of interacting with friends.
"Toys are not really as innocent as they look. Toys and games are preludes to serious ideas.” - Charles Eames
"Snapchat does not have a clear monetization strategy and the content they have is ephemeral. If a snapchat clone came out tomorrow, snapchat wouldn't be as sticky. Snapchat looks like twitter, the poster child for massive high engagement with disposable content and horrible biz fundamentals. In fact, twitter or facebook could clone snapchat probably super easy and enjoy crazy leverage and synergy. The only reason a 3rd unknown party can't is network penetration."
This is fundamentally wrong. I'm an advertiser and I have seen so many Snapchat campaigns work tremendously well for brand advertisers. All for large established brands who are spending solid amounts with the platform.
Much of the hard work is ahead for the platform in terms of measurement and clear steps to defining and achieving ROI metrics such as awareness, brand uplift all the way through to DR elements such as traffic, leads, mobile installs and conversions.
The company makes huge strides very often updating media packs, incorporating measurement (Nielsen) etc. I expect very smart acquisitions in terms of continuing to drive user growth on the consumer side and build out of measurement / ads API to cater to the agency world in the next 12-18 months.
An IPO for snapchat is some time away but it is building a very real commercial organisation amongst brands, advertisers, agencies, the TV community (look at the viacom deal recently).
Also to your point here:
"FB raised 16B in a horribly botched IPO."
You can't say a company raised $16bn and had a horrible IPO. This really doesn't make any sense irrespective of all the ratchets and clawback clauses (none of which will keep any FB exec up at night let alone the CEO). Look at FB today, you should be kicking yourself if you had the chance or even thought about buying the stock at $17 when it was being shorted like crazy by Wall Street.
Well, I've been saying Snapchat can't possibly be worth $29bn when it did IPO. And surprise, it lost most of this value. Snapchat is a lot like Slack - it's a feature, not a product. Once Facebook copied the feature, Snapchat was doomed. Same will happen with Slack (in this case I think MSFT will be its undoer).
Personally I'm not a chronic pessimist, but my view on Snapchat is the same as Twitter, and look at what is happening with them.
They are only worth their Market Cap in the sense that investors literally bought-in that much because of a hypothetical upside based on scale. What happened when they tried to sell the company? The realization sets in that the company just isn't worth that much money, nor can anyone foresee how it could be in the near future.
It is a self-sustaining situation with these companies. Nobody wants to write off that big of a loss, so the valuation is sustained.
Many others are sustained on the inflated belief that the market for Ad views is adjusted for the prevelance of fraud. How many times has it been shown that click, view and user bots are used in staggering numbers. The companies making all the money have little incentive to correct this. But of course Ads clearly work in many situations. I'm just saying these bloated valuations based on ad revenue have not been adjusted for the fraud reckoning. Google struck gold because the underlying utility of the search engine is so unquestionably powerful and ubiquitously necessary to the idea of the internet that it guarantees a truly awe-inspiring user base. The value proposition of getting that service for free makes viewing Ads a second thought - it is a reasonable deal for the user.
What do people need from Snapchat that will keep them there? Sharing pictures and text messages is rapidly, and I mean rapidly, approaching a commodity service on par with landline telephones.
Anyways, the blanket optimists are subject to the same odds. If you believe everything is going to succeed, inevitably you will be correct. Everyone has confirmation bias.
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