First, an analogy. In my very humble opinion the value of snapchat is set similarly to how the value of MySQL was set at $1 billion at acquisition by Sun seven

First, an analogy. In my very humble opinion the value of snapchat is set similarly to how the value of MySQL was set at $1 billion at acquisition by Sun seven years ago, a tremendous multiple, despite its being open-source at the time with next to no revenue. (Its revenues were something like $48 million, so Sun purchased it at 15-20 times earnings.) In the opinion of myself and others, the price was set by the value, to Oracle (the leading database company), of MySQL not doing an IPO as it had been planning shortly before[1], or Sun not competing with Oracle head-on. In fact, within 24 months of that acquisition, Oracle, a roughly $100 billion company[2] besieged by competition from open-source databases like MySQL and a flagging share price, itself completed an acquisition of Sun Microsystems for $7.4 billion. What are the chances that would have happened if Sun hadn't first paid $1 billion to own a direct threat to Oracle? According to one person, Larry Ellison often said, "It’s not enough to win—all others must fail." [3] Basically, there is an elephant in the room setting the price of Snapchat. The price has nothing to do with revenues and everything to do with the elephant. The elephant is trading at a market cap of $211.61B. That elephant is Facebook. Snapchat is worth $20 billion because Facebook is worth $211.61 billion and it's a direct threat. It was about a year ago that Facebook paid $20 billion for Whatsapp[4], when FB was trading at less than it is today. (And in a move some viewed as desperate [4]). $19 billion seems downright reasonable viewed in that context. What are the chances Facebook will pay more for it? Not low. Snapchat is three and a half years old and has about 200 million monthly active users. This chart from around the time of the whatsapp acquisition is all you need to look at: http://slicecommunications.com/wp-content/uploads/2014/02/Whatsapp-users1.png http://slicecommunications.com/wp-content/uploads/2014/02/Wh... Snapchat is a threat: http://www.businessinsider.com/snapchats-monthly-active-users-may-be-nearing-200-million-2014-12 http://www.businessinsider.com/snapchats-monthly-active-user... And Facebook has the money and drive to make it bolster their own numbers instead. This is why it's worth $20 billion. - [1] http://www.bloomberg.com/bw/stories/2007-06-26/the-worth-of-open-source-open-questionbusinessweek-business-news-stock-market-and-financial-advice http://www.bloomberg.com/bw/stories/2007-06-26/the-worth-of-... [2] http://www.wolframalpha.com/input/?i=oracle+market+cap+Apr+20%2C+2009+ http://www.wolframalpha.com/input/?i=oracle+market+cap+Apr+2... [3] http://steveblank.com/2014/09/25/watching-larry-ellison-become-larry-ellison-the-dna-of-a-winner/ http://steveblank.com/2014/09/25/watching-larry-ellison-beco... (apparently this quote appropriated from Gore Vidal though) [4] http://www.cnbc.com/id/101432344 http://www.cnbc.com/id/101432344 [5] http://www.cnbc.com/id/101429929 http://www.cnbc.com/id/101429929