2 ms·

Generally speculative investments priced via proxy. Not sure if venture capital is much different but wall street types pay close attention to ratios. One of th

by bko 12y ago

Generally speculative investments priced via proxy. Not sure if venture capital is much different but wall street types pay close attention to ratios. One of the important ratios is price to earnings, which is the dollar price you have to pay for a dollar of earnings. If the company doesn't have any earnings, you can look price to revenue. If no revenue, look at price to user acquired. For instance, Facebook paid $28 per user [0] The median cost across all the acquisitions was about $92 per user in 2012 [1] I'm not sure about the number of users Snapchat but the article says that there are 700 MM snapchats sent daily. Assuming 700 MM users (almost certainly overestimated), the cost per user at ~$27. Snapchat is said to be the #3 social app among millennials though [2]. This is probably how they got to this number. For proxy, Facebook makes about $2.81 revenue per worldwide user (US is higher at $9) with ~30% operating margin [3]. Would love to hear someone working in VC comment as to the rationale used. [0] http://www.statista.com/statistics/222363/price-per-user-at-selected-tech-acquisitions/ http://www.statista.com/statistics/222363/price-per-user-at-... [1] http://www.wired.com/2012/04/opinion-baio-instagram-trend/ http://www.wired.com/2012/04/opinion-baio-instagram-trend/ [2] http://techcrunch.com/2014/08/11/snapchat-is-now-the-3-social-app-among-millennials/ http://techcrunch.com/2014/08/11/snapchat-is-now-the-3-socia... [3] http://files.shareholder.com/downloads/AMDA-NJ5DZ/3988722759x0x805520/2D74EDCA-E02A-420B-A262-BC096264BB93/FB_Q414EarningsSlides20150128.pdf http://files.shareholder.com/downloads/AMDA-NJ5DZ/3988722759...

josu 12y ago
This article is talking about 100MM users back in August when it was valued at 10B. http://mashable.com/2014/08/26/snapchat-10-billion-valuation/ http://mashable.com/2014/08/26/snapchat-10-billion-valuation...
mathattack 12y ago
I think you did a very good job describing the valuation process. In the absence of a PE ratio, folks fixate on $ value per user. I'm not a VC, but I've seen a lot of valuations. Two caveats I would add: 1 - Investors will modify the amount based on growth. (300 million users at flat growth is worth less than 300 million users growing at 20% a quarter. This is the Twitter problem.) 2 - Investors will pay more for higher value users. Even if the path to monetization isn't obvious, high income users are worth more than low income users.
- ankurpatel 12y ago
  $ value per user makes sense but with viral growths there can be a viral decline in user base as well. To make it sustainable you need more than just an app which Facebook has. FB along with being an app is a site and a platform to log into any site you want and Snapchat is not.
  - mathattack 12y ago
    All very true. The value per user is just an imperfect heuristic when other measures (such as cash flows) aren't available. It's also a decent (and still imperfect) measure for acquisition value, though it has the limits that you mentioned.

by bko 12y ago

josu 12y ago

This article is talking about 100MM users back in August when it was valued at 10B. http://mashable.com/2014/08/26/snapchat-10-billion-valuation/ http://mashable.com/2014/08/26/snapchat-10-billion-valuation...

mathattack 12y ago

I think you did a very good job describing the valuation process. In the absence of a PE ratio, folks fixate on $ value per user. I'm not a VC, but I've seen a lot of valuations. Two caveats I would add: 1 - Investors will modify the amount based on growth. (300 million users at flat growth is worth less than 300 million users growing at 20% a quarter. This is the Twitter problem.) 2 - Investors will pay more for higher value users. Even if the path to monetization isn't obvious, high income users are worth more than low income users.

ankurpatel 12y ago
$ value per user makes sense but with viral growths there can be a viral decline in user base as well. To make it sustainable you need more than just an app which Facebook has. FB along with being an app is a site and a platform to log into any site you want and Snapchat is not.
- mathattack 12y ago
  All very true. The value per user is just an imperfect heuristic when other measures (such as cash flows) aren't available. It's also a decent (and still imperfect) measure for acquisition value, though it has the limits that you mentioned.