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Snapchat Is Mulling Another Huge Round at a $3.5 Billion Valuation
- cygwin98 13y agoOne thing I don't get Snapchat is that if I use an iPhone (Android probably has other way to do so), I can always make a screenshot whenever I open your naughty pictures, right? So what's the point even if the naughties get deleted in a few seconds, if I have a local copy anyway? I know I don't belong to the targeted demographics, just out of curiosity.
- brianwawok 13y agoIts meant to be like talking. No record by default. Sure you can "hack it" and keep a copy.. but you can tape record a spoken conversation also, right? Just not 100% of every spoken words won't be written down, just like 100% of snapchats won't be saved by the end users.
- cygwin98 13y agoNow I got the social piece. Thanks for the explanation.
- gburt 13y agoIt sends a notification back to the sender if you do that.
- wil421 13y agoHAHA 3.5 Billion Valuation! 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. http://mashable.com/2013/08/11/teens-facebook/ http://mashable.com/2013/08/11/teens-facebook/
- wil421 13y agoDown vote all you want. This app was first introduced to me I was told: "You can send naughty pictures to people and they cant save them."
- akavi 13y agoFor my social milieu (early 20s SF), naughty pictures are a pretty small fraction of use. I'd say it's more in line with "non-public twitter, with photos".
- atwebb 13y agoI'm not saying the valuation is justified but naughty pictures have proven to be a very, very profitable industry.
- wil421 13y agoAgreed. But how can a company that shows pictures for seconds and deletes them make money? And only have one use case or feature?
- atwebb 13y agoOff the top of my head? Allow people to charge for subscriptions to their feeds and take a cut. People follow you, you make naughty pics and send them out, people see them. There's lots of ways for the leader to play with the timing and types of photos too. It makes the user's feel a connection since it's not publicly available, have private ones, etc.
- wil421 13y agoKind of like a paid /r/gonewild. Hmmm there are probably a number of porn stars/models that would buy into this. $5.00 a month to buy into this snapchat feed. We can use the reverse Apple method give 30% to the model. If you could get 100k users to follow the models that would be 350K a month/4.2 million a year. We might be on to something.
- w1ntermute 13y agoIt really is astonishing how the most idiotic services gain so many users by "going viral." And it just motivates more hackers to work on being the next Snapchat or Instagram rather than putting in the effort to solve the real problems that plague our society.
- deleted 13y ago[deleted]
- interstitial 13y agoYour assuming the real problems that plague society are not based on the success of Snapchat and Instagram. I think they are. Narcissism.
- nostromo 13y agoCoca-Cola's valuation is 170 billion. Not only do they not solve any real problems, they actually create them. Same goes for every oil company in existence. If you want to change the world in a more serious way, SnapChat's valuation should have as much of an impact on your determination as Coca-Cola's.
- jbackus 13y ago>[Coca-Cola does] not solve any real problems huh? Providing value in a market has nothing to do having some direct and profound impact on society. They make drinks people like and are willing to pay for.
- deleted 13y ago[deleted]
- tomkin 13y agoCoca-Cola isn't an idea, it's sugar water, something people have enjoyed for decades. SnapChat is a service that requires very little infrastructure when compared to Coca-Cola. Not to mention thousands of employed people vs a handful. Watching a bunch of critical thinkers, developers and startups pull at straws trying to defend ridiculous payouts, evaluations and utopian end-games sounds more like 2009-era stock broker talk than it does anything positive or revolutionary.
- nwh 13y ago$3.5B for an app lots of developers could create over the weekend is absolutely incredible. It also has absolutely no income, and very little avenue for actually gaining any. I don't know what they're doing to need seed money, I can only imagine that the service runs itself outside of tweaking EC2 instance sizes.
- lolwutf 13y agoIs it just me, or does this finally scream 'bubble'?
- nemothekid 13y agoPeople have been screaming bubble for years now. Facebook's IPO was a "bubble." Instagram's aquisition was a "bubble." Pinterest is a "bubble." While we all conveniently ignore that most startups today are generating real revenue and firms like a16z are massively scaling back funding to early stage consumer startups, I hardly think one "bad apple" (if it is, maybe they will come up with some crazy way to make revenue, I'm not a psychic) is a sign of a bubble.
- LandoCalrissian 13y agoI largely agree with this, it seems the only area where valuations are getting really crazy are in the app market. I assume the only real plan they could have is acquisition, and even then I really only see Facebook taking that dive.
- nwh 13y agoFacebook have already cloned it. https://itunes.apple.com/app/facebook-poke/id588594730 https://itunes.apple.com/app/facebook-poke/id588594730
- tomashertus 13y agoand failed badly...
- brd 13y agoI have to say, I'm a little shocked that Snapchat's valuation is only ~10% lower than Pinterest's (3.8bn) I would think there is a pretty huge difference between their potential revenues
- abat 13y agoI think people are valuing Pinterest more on a per user basis, but Snapchat has a lot more users and is growing faster.
- npalli 13y agoI will leave the bubble question aside and ask what is the money raised being used for? Infrastructure to do what? Doesn't snapchat delete the photos after the other party sees them? Or this another ad play where photos are stored and some big data program will create targeted ads.
- judk 13y agoThe photo content is not at all relevant to ads.
- programminggeek 13y agoDoes anyone else find this valuation incredibly ironic given that in 1999 Yahoo! bought Geocities for $3.57 billion? I mean, does anyone believe that Snapchat is going to ever be a service that brings in billions of dollars in revenue?
- potatolicious 13y agoThis is IMO the wrong way to look at it. Look at this more like Instagram. Neither Snapchat nor Instagram are creating new traffic. What they are doing is essentially stealing marketshare and user engagement from competing services like Facebook and Twitter. Their valuation isn't their revenue potential, it's the opportunity cost to Facebook, Twitter, et al for letting them survive. If Snapchat is stealing $1bn of monetizable traffic from Facebook, Facebook would be wised to pay some amount of money (<$1bn) to either shut it down or bring them into the fold. There is some extra valuation here in fucking your competitor over. Acquisition of hot social media companies like this is equal parts adding monetizable traffic to your network (traffic they may have taken from you in the first place...), as well as denying your competitors the ability to do the same. So, say if Twitter acquires Snapchat, their valuation will be some combination of ${traffic_twitter_loses_to_snapchat} + ${traffic_facebook_loses_to_snapchat} + ${value_in_denying_facebook_access_to_this_traffic} Whether or not that's worth $3.5bn is questionable, but there is some reason behind valuing non-revenue-generating products with a positive valuation. The main "bubble" part here is whether or not this is at all sustainable (IMO, probably not). It's pretty easy to create something that steals an appreciable amount of traffic from the incumbent social network behemoths. At these valuations the cost to "recover" these eyeballs far exceeds how much the traffic is actually worth in ad revenue.
- rexreed 13y agoEven in the rarified atmosphere that is Silicon Valley, the Instagram acquisition was unusual. Very much so. Acquired by Facebook just prior to their IPO. Lots of motivations for that, but by no means is Instagram an exemplar of anything. It's probably an outlier among outliers.
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- sksksk 13y agoSomething that always bugs me about valuations, wondering if someone could explain. A lot of these investors probably have multiples. So if someone $1m in a company for 10%, and the company sells for $5m, they'll get back at least $1m, rather than $500k. If investors are only putting money in with these multiples, then doesn't it artificially raise these valuations? If so, is there a measure for the valuation of a company that takes this into account?
- pmarca 13y agoTypically investments in private technology companies include a provision called "liquidation preference" where investors get their money out before other shareholders (managers and employees) get paid on an exit. A common term is "1x liquidation preference" which is the example you give -- if I put in $1M, I get $1M out before anyone else gets paid, even if the sale valuation is less than the valuation at which I invested. Sometimes you see 2x or 3x liquidation preference, in which investors get that level of return before other shareholders get paid. This is considered "less common-friendly" and is a worse term if you are a founder or employee. There are also other variations on this general idea that you see particularly when valuations get high. So, in a case like the purported Snapchat round, a new investor would actually look at the investment as a combination of financial instruments -- think of it as a call option (participate in appreciation above the entry price) coupled with a put option (get your money out if the company sells at least for more than the amount of invested capital). The more money involved, the more complex this gets and the harder it is to evaluate the true pros and cons of the investment based on public reporting.
- cs702 13y ago"Besides the huge piles of investment dough being poured into [these companies], here’s what else [they] have in common: Little to no revenue. That does not seem to have stopped a panoply of venture and other investors from jumping in and ponying up with huge amounts of cash for the privilege of investing in several fast-growing startups, hoping to grab ahold of the next Twitter or Facebook early." I don't know anything about Snapchat's internal operations or plans, and therefore can't really judge whether the company will eventually figure out how to make enough money from its self-destructing messages to warrant a $3.5 billion valuation today. What I DO know is that whenever investors start "jumping in and ponying up with huge amounts of cash for the privilege of investing" (in new companies with no revenues), there's a good chance that valuations are getting too optimistic -- and that never ends well. Maybe this time things really are different, but it's hard for me not to see some parallels with the "dot-com bubble" of the late 1990's.[1] -- [1] http://en.wikipedia.org/wiki/Dot-com_bubble http://en.wikipedia.org/wiki/Dot-com_bubble
- nemothekid 13y agoAre there any examples of any other companies other than snapchat that are raising a huge amount of money with little to revenue, or revenue potential? While its important we don't repeat the mistakes of the past, I'm hesitant to claim that all of Silicon Valley will burn to the ground because solely SnapChat was a bad investment.
- xgarland 13y agoEver heard of Pinterest? They definitely fall into that category of companies with little to no revenue, but have a massive valuation. Here's the thing: While users may not be paying with their dollars just yet, almost all of them are paying with their time. So, it's not completely absurd that certain companies are able to attract such capital if investors continue to recognize huge potential in the long run.
- brandoncapecci 13y agoDo we have any engagement numbers on Snapchat? The deal with Pinterest is that most of their users also have some intent to purchase a lot of their pins. They also have a ton of data for precisely targeted adverts. I'm not even sure about the options Snapchat has for for monetization.
- pud 13y agoThe purpose of these big rounds, usually, is founder liquidity. Snapchat could easily get acquired, making the founders (and early employees) very rich. But investors don't want them to sell yet. So investors buy a lot of common stock (from founders/employees) at a big valuation, making the founders (aka the only board members who aren't already rich) rich, so that the founders are less interested in selling. Some of the money goes to the company. But it's not usual for 20-25% of big rounds to go to founders/early employees.
- pkfrank 13y agoThanks for this comment. It frames the valuation in a way that actually makes some semblance of sense.
- jerrypo 13y agoGreat insight pud, puts these crazy valuations into perspective.
- mh- 13y agogreat insight from someone who knows an F'd Company when he sees one. ;)
- taurussai 13y agoDoesn't founder liquidity typically range swap out some equity for single digit million dollars?
- dfrey 13y agoThe only way Snapchat is worth $3.5 billion is if they have been secretly saving all of the photos and they threaten to post them all online unless the users pay $100 per photo.
- biot 13y agoLike SnapChat's messages, the $3.5 billion valuation is self-destructing as well.
- davtbaum 13y agoThis is ridiculous. How exactly does Snapchat plan on profiting from their user base if they have yet to have proven a revenue model? Sure, advertisements seem like the end game, but how will they be targeted? How can they be implemented without severely affecting application experience and user expectations?
- alt_f4 13y agoSounds like yet another round of investor hot potato.
- akuma73 13y agoThe valuation is based on what I would call "defensive valuation". Instagram was bought for $1 billion, not because it had any billion dollar revenue generating potential. It, however, had the potential to erode Facebook. So Facebook buys it out as a defensive move. Snapchat, given its huge user base, could potentially threaten Facebook, so Facebook would be forced to acquire them, purely as a defensive strategy. Think of it as the cost of defending their empire.
- confluence 13y agoJust a little tip for my fellow programmers. Valuations are just numbers that are pulled out of a hat. /tip
- adventured 13y agoSo the investors funding Snapchat at a $3.5+ billion valuation, think it will one day be worth $10 or $15 billion (at least). Yeah.... The Fed has finally done it with their hyper loose monetary policies (for the third time in 15 years). I think it's safe to assume the dotcom insanity has begun again. It's also drastically pushing up dotcom valuations in the public market as well.