6 ms·

I'm having a hard time understanding how, 1. Facebook figures Snapchat is worth $3B, and 2. Snapchat figures Snapchat is worth more than that, and refuses the

by SeoxyS 13y ago

I'm having a hard time understanding how, 1. Facebook figures Snapchat is worth $3B, and 2. Snapchat figures Snapchat is worth more than that, and refuses the offer. The valuation multiples lately have gotten me to wonder what I'm doing. I'm quite familiar with a growing startup that has 9 figures in yearly revenues, and a 9 figure valuation. It makes almost as much money as Twitter, but the valuation is less than 300x smaller. It makes infinity times more money than snapchat, but has a thirtieth of the valuation. What is going on?

dman 13y ago
How do I invest in this startup :)
cheald 13y ago
I'm going to guess that Snapchat is a $3B threat to Facebook; I doubt it's actually worth that.
- VladRussian2 13y ago
  as a threat to FB it worth much more. FB is just too slow to recognize it. Wrt. feeling of immediacy/in-the-moment/real-time we have progression from "archaic grand-ma long form" style of FB status update, wall posting, etc.. -> TWTR -> Snapchat. FB is $100/user, TWTR is $100/user and the $3bn is about the same valuation for Snapchat.
  - clarky07 13y ago
    The real question is how in the world any of these companies are going to making $100/user. I am a user of FB and TWTR and I can't imagine how I will ever make that much money for them. Certainly I can see some money, but not that much. CPM's just aren't that high. Snapchat? not a chance.
    - tanzam75 13y ago
      > The real question is how in the world any of these companies are going to making $100/user. How much were eyeballs worth back in 1999? I don't quite remember. Was it more or less than $50 per eyeball?
the_watcher 13y ago
>> 1. Facebook figures Snapchat is worth $3B, and They probably don't. They are in land grab mode for users, and SnapChat has the young teen audience that Facebook (relatively) struggles with (which, for whatever reason, seems to bother Wall Street). They probably bid far beyond what they value it at currently, assuming they can find a way to monetize it later once they have the users.
jorgem 13y ago
You're doing better than me. I still don't understand why FB is worth anything.
- deleted 13y ago
  [deleted]
- qq66 13y ago
  You don't understand why an organization that makes multiple billions of dollars in profit every year is worth a lot of money?
nqureshi 13y ago
"It makes infinity times more money than snapchat, but has a thirtieth of the valuation. What is going on?" A valuation isn't just based on how much money a company makes right now. It's based on how much money the company's expected to make over its lifetime. Snapchat's valuation [1] is based on expectations of high future revenue. (There was a point where Facebook & Twitter had 0 revenue, too. Now they're both multi-billion dollar public companies.) These stories always cause scepticism, especially in the HN crowd. It's the most common response ("What?! 4 BILLION!?"), and an easy one (i.e. doesn't require much thought), but it's the wrong one. Sure, you can argue over the exact number, but let's consider the reverse claim: are you really willing to bet that an app that processes 350m+ messages every day is worth nothing? If not, what would you value it at? Answering that question requires hard thought; reflexive scepticism doesn't. And if you were really imaginative & thought it through, you'd probably arrive at quite a high number. For many consumer apps, the path to market dominance involves offering a service for free at first, and then 'monetizing' later on. The whole point of venture capital is to allow that (common) pattern to happen; the result is massive companies - like Dropbox and Airbnb - that weren't always cashflow positive, and that meaningfully benefit the world. Perhaps it was crazy of Snapchat to turn down $3 billion, and maybe they really are overvalued, but it seems obvious that they are worth a lot of money [2]. [1] Although valuations make great media stories, valuation is really not that meaningful a number for private VC-funded companies. [2] If you don't agree, consider that both Mark Zuckerberg & the founders of Snapchat disagree with you. So either you're smarter than Mark Zuckerberg & the founders of Snapchat, or you're probably wrong.
- dsl 13y ago
  Snapchat needs to be valued not as a social network, maybe as a amateur porn company. I have lots of friends who use Snapchat (mostly the teen to college demographic), and they all use it for photos that they don't want other people to ever see. They use iMessage or Whatsapp for everything normal. The user generated content literally disappears in 10 seconds, and you are left with... nothing.
  - nqureshi 13y ago
    As I understand it, your argument is: 1. Some friends I know use Snapchat for 'photos they don't want other people to see'. 2. Therefore, most people use Snapchat to send porn. 3. Therefore, Snapchat should be valued as an amateur porn company. Do you really believe that's a valid argument? And that all of the 350m+ photos sent on Snapchat every day are porn?
dsl 13y ago
You screwed up by making money. There is an actual metric to judge your value by, rather than using fuzzy valley metrics.
pakitan 13y ago
This press release explains the method of valuation: http://37signals.com/svn/posts/1941-press-release-37signals-valuation-tops-100-billion-after-bold-vc-investment http://37signals.com/svn/posts/1941-press-release-37signals-... "When it comes to valuation, making money is a real obstacle. Our profitability has been a real drag on our valuation" :)
yapcguy 13y ago
Twitter is "worth" more than BAE Systems, based on market cap. The valuation of companies with no record of profits and no easy path to profitability is utterly ridiculous.
dmak 13y ago
Rejecting an offer does not mean you think you are worth more than that.
Gustomaximus 13y ago
I would take this further and say, how do we know this was a real offer an not PR? Or there were onerous conditions that 'could' value this at 3bn but was more likely significantly less.
yetanotherphd 13y ago
One principle of negotiation is that you don't offer exactly what you think something is worth, you offer less. Facebook made an offer of $3B, all that implies is they think Snapchat is worth more than $3B.
- jaynos 13y ago
  By that logic, SnapChat will never sell. They get a $4B offer...well, that company must think we are worth $5B...and so on.
  - yetanotherphd 13y ago
    I was glossing over a detail that what the company is worth to Facebook may be different to what it is worth to the owners. There is a little known gem of modern microeconomics called the Myerson–Satterthwaite theorem. It states that under certain assumptions (Bob knows what an item he owns is worth to him, Alice knows what it is worth to her, both values are drawn from some commonly known random distribution) there is no mechanism that will guarantee that trade takes place exactly when it "should" (when the item is worth more to Alice than to Bob) and that relies on truthful revelation by both parties. That is, even when there is room for profitable trade, negotiations may break down because the only way to ensure the perfect outcome is for each agent to truthfully reveal what the object is worth to them, and there is no way to give people an incentive to do this in all cases.

by SeoxyS 13y ago

dman 13y ago

How do I invest in this startup :)

cheald 13y ago

I'm going to guess that Snapchat is a $3B threat to Facebook; I doubt it's actually worth that.

VladRussian2 13y ago
as a threat to FB it worth much more. FB is just too slow to recognize it. Wrt. feeling of immediacy/in-the-moment/real-time we have progression from "archaic grand-ma long form" style of FB status update, wall posting, etc.. -> TWTR -> Snapchat. FB is $100/user, TWTR is $100/user and the $3bn is about the same valuation for Snapchat.
- clarky07 13y ago
  The real question is how in the world any of these companies are going to making $100/user. I am a user of FB and TWTR and I can't imagine how I will ever make that much money for them. Certainly I can see some money, but not that much. CPM's just aren't that high. Snapchat? not a chance.
  - tanzam75 13y ago
    > The real question is how in the world any of these companies are going to making $100/user. How much were eyeballs worth back in 1999? I don't quite remember. Was it more or less than $50 per eyeball?

the_watcher 13y ago

>> 1. Facebook figures Snapchat is worth $3B, and They probably don't. They are in land grab mode for users, and SnapChat has the young teen audience that Facebook (relatively) struggles with (which, for whatever reason, seems to bother Wall Street). They probably bid far beyond what they value it at currently, assuming they can find a way to monetize it later once they have the users.

jorgem 13y ago

You're doing better than me. I still don't understand why FB is worth anything.

deleted 13y ago
[deleted]
qq66 13y ago
You don't understand why an organization that makes multiple billions of dollars in profit every year is worth a lot of money?

nqureshi 13y ago

"It makes infinity times more money than snapchat, but has a thirtieth of the valuation. What is going on?" A valuation isn't just based on how much money a company makes right now. It's based on how much money the company's expected to make over its lifetime. Snapchat's valuation [1] is based on expectations of high future revenue. (There was a point where Facebook & Twitter had 0 revenue, too. Now they're both multi-billion dollar public companies.) These stories always cause scepticism, especially in the HN crowd. It's the most common response ("What?! 4 BILLION!?"), and an easy one (i.e. doesn't require much thought), but it's the wrong one. Sure, you can argue over the exact number, but let's consider the reverse claim: are you really willing to bet that an app that processes 350m+ messages every day is worth nothing? If not, what would you value it at? Answering that question requires hard thought; reflexive scepticism doesn't. And if you were really imaginative & thought it through, you'd probably arrive at quite a high number. For many consumer apps, the path to market dominance involves offering a service for free at first, and then 'monetizing' later on. The whole point of venture capital is to allow that (common) pattern to happen; the result is massive companies - like Dropbox and Airbnb - that weren't always cashflow positive, and that meaningfully benefit the world. Perhaps it was crazy of Snapchat to turn down $3 billion, and maybe they really are overvalued, but it seems obvious that they are worth a lot of money [2]. [1] Although valuations make great media stories, valuation is really not that meaningful a number for private VC-funded companies. [2] If you don't agree, consider that both Mark Zuckerberg & the founders of Snapchat disagree with you. So either you're smarter than Mark Zuckerberg & the founders of Snapchat, or you're probably wrong.

dsl 13y ago
Snapchat needs to be valued not as a social network, maybe as a amateur porn company. I have lots of friends who use Snapchat (mostly the teen to college demographic), and they all use it for photos that they don't want other people to ever see. They use iMessage or Whatsapp for everything normal. The user generated content literally disappears in 10 seconds, and you are left with... nothing.
- nqureshi 13y ago
  As I understand it, your argument is: 1. Some friends I know use Snapchat for 'photos they don't want other people to see'. 2. Therefore, most people use Snapchat to send porn. 3. Therefore, Snapchat should be valued as an amateur porn company. Do you really believe that's a valid argument? And that all of the 350m+ photos sent on Snapchat every day are porn?

dsl 13y ago

You screwed up by making money. There is an actual metric to judge your value by, rather than using fuzzy valley metrics.

pakitan 13y ago

This press release explains the method of valuation: http://37signals.com/svn/posts/1941-press-release-37signals-valuation-tops-100-billion-after-bold-vc-investment http://37signals.com/svn/posts/1941-press-release-37signals-... "When it comes to valuation, making money is a real obstacle. Our profitability has been a real drag on our valuation" :)

yapcguy 13y ago

Twitter is "worth" more than BAE Systems, based on market cap. The valuation of companies with no record of profits and no easy path to profitability is utterly ridiculous.

dmak 13y ago

Rejecting an offer does not mean you think you are worth more than that.

Gustomaximus 13y ago

I would take this further and say, how do we know this was a real offer an not PR? Or there were onerous conditions that 'could' value this at 3bn but was more likely significantly less.

yetanotherphd 13y ago

One principle of negotiation is that you don't offer exactly what you think something is worth, you offer less. Facebook made an offer of $3B, all that implies is they think Snapchat is worth more than $3B.

jaynos 13y ago
By that logic, SnapChat will never sell. They get a $4B offer...well, that company must think we are worth $5B...and so on.
- yetanotherphd 13y ago
  I was glossing over a detail that what the company is worth to Facebook may be different to what it is worth to the owners. There is a little known gem of modern microeconomics called the Myerson–Satterthwaite theorem. It states that under certain assumptions (Bob knows what an item he owns is worth to him, Alice knows what it is worth to her, both values are drawn from some commonly known random distribution) there is no mechanism that will guarantee that trade takes place exactly when it "should" (when the item is worth more to Alice than to Bob) and that relies on truthful revelation by both parties. That is, even when there is room for profitable trade, negotiations may break down because the only way to ensure the perfect outcome is for each agent to truthfully reveal what the object is worth to them, and there is no way to give people an incentive to do this in all cases.