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HOW DO YOU reach a point where you could have something valued at €16 billion? That’s the situation Snapchat has found itself in as it looks to raise up to $500 million, a funding round that would see its value go up to between $16 – $19 billion.
Even if you believe that’s a huge overestimate, Snapchat has become so much more than a picture messaging app. It’s positioned itself as a serious contender to Facebook’s mobile ambitions, and it’s only getting started.
The concept of Snapchat has been well documented by now so we’ll spare you the details, but its evolution has been something else entirely.
The core appeal of the app is its feeling of spontaneity. Since you can’t upload or save photos and they disappear within a few seconds, it means you have to go with the shot you’ve taken and stick with it. The original concept was a breath of fresh air when it first launch in 2011 (and still is), and even with the numerous attempts out there, nobody has really matched it.
Since what you’re viewing, be it a video or image, is going to disappear anyway, it does encourage you to pay more attention to what’s being posted. If something is around on demand, you’re not going to place much value on it as it’s easily accessible, but when it’s a once-off, that’s a different story.
Its future success boils down to three features it has released in recent times, one of which is a long-term bet.
Snapchat Stories
Probably the most important of Snapchat’s features, Stories is the one that is ripe for growth. Essentially a curated version of videos, all the videos that appear are shared among friends, but it’s the ones that are linked to a specific event – Our Story to give its official title – that has the most potential.
Users contribute their own clips relating to events like music festivals or sporting events and according to Snapchat, attracts a massive audience as the videos are short and it’s where the element of spontaneity mentioned earlier really comes into play.
While it’s limited to major events right now, you could see a situation where, over time, smaller events or even competitions will include this feature, bringing out the best clips and photos from it.
That sharing is going to become more prevalent as Snapchat recently integrated music playing in videos. If you have a track playing in a music app, it will record that alongside your video clip.
Think along the lines of Dubsmash and you’ll have the right idea. There was an app called Mindie which allowed you to upload video with music to Snapchat in the US, but it was cut off.
Discover
If there’s one section that would really annoy Facebook, it’s how Snapchat convinced some of the biggest online publications and media entities to publish stories directly through the app. Something Facebook has been trying to do with posts and now video.
This is major for two different reasons. The first is that Snapchat managed to convince these companies to cut out the middleman and publish directly – even if they’re not major stories or separate content, that’s still a big deal.
The other is that it has effectively created a multimedia ecosystem. While it starts off with news and videos now, what’s to say it won’t branch out and include other app-like services in Discover. Having the right type of audience can make a lot of things happen.
Snapcash
This is very much a long-term bet. Not much has happened with it since it launched in the US back in November, there isn’t much impetus on the user’s part to send over cash, but thinking about it from a user-to-user perspective isn’t really the point.
The best app to compare this to would be Line, the instant messaging app that’s huge in Asia and sees it moving into mobile payments and launching its own taxi service.
Snapchat appears to be following the same trajectory and with brands and companies clamouring to be on the platform, there’s a future where you’ll be paying for certain services through it or a similar app.
Since you have the likes of Apple Pay finding its feet, Google starting to expand its Wallet service and Samsung buying LoopPay, that’s going to be an important factor.
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“This is why Snapchat fully deserves a €16 billion valuation” And yet the article doesn’t explain why Snapchat deserves a €16 billion valuation. Sure, I understand its potential revenue raising abilities. I understand its appeal to advertisers. I understand that it hosts a lot of personal information which would be invaluable to potential investors and advertisers. But why, exactly, is it €16 billion? Why not €15 billion? Or €1000 trillion? How did they arrive at a figure of €16 billion?
I think the headline means, “Snapchat has recently been valued at $16bn. Here’s why it’s so popular/unique”.
Yeah, but we know why it’s so popular and unique. We see articles about it every second day. If, at this stage, you don’t know about Snapchat’s popularity and uniqueness then the likelihood is you just don’t care, in which case you wouldn’t be reading this anyway. We have still to see how exactly the 16 billion figure was calculated, which I what the headline alludes to.
What I was saying above is that Snapchat has three major features that could be massive money spinners for them, and how it’s effectively become a multimedia platform as well, they’re the most quantifiable ones unless you’re privy to their future plans then fire away.
As for how a company is valued, that takes into a number of factors into consideration which would include money raised (so far, it’s raised $648m in 6 different funding rounds), current popularity, the potential for growth in both revenue and users, (which links to the last one but anyway), the value of the industry (instant messaging would be the obvious one, but it’s now become a media entity and has video on its side so that’s two, three if you include Snapchat Stories and its potential for widespread event), assets (both digital and physical), is it public or private, and so on.
Determining the exact reasons why it settled on $19/€16 billion to the point of a formula isn’t possible since you don’t know what factors they’re prioritising ahead of others. Also, when you’re dealing with a private company as unlike Facebook, Apple, Twitter or any other public company, they’ve no obligation to share details about their plans or forecasts to anyone.
In Snapchat’s case, it’s potential in three areas as I mentioned above: events, multimedia (it trying to become a Netflix-style entity for articles, music and TV), and payments/ecommerce as they’re the ones that have a massive influence on this valuation. Also the core psychological element of Snapchat of limitation (which is oddly overlooked and was the main reason I wrote this in the first place) is such a massive factor and that seeps into all of its features. If Snapchat was just about self-destructing photos/videos on its own, then it would have been overshadowed by Facebook Poke back in 2012 or accepted Facebook’s $3 offer back in 2013.
The discussions I’ve seen on the subject (on Twitter and other sites) only mention Discover as if that was the sole reasons behind such a high valuation. The main point above is that it’s rarely one factor that leads to that, (especially when it’s well-known), and it’s weird how other features are forgotten about just because they’re not as new or shiny as the latest thing (or the tired ‘sexting’ angle that’s peddled out regularly).
Give it 3 yrs and youll see all such companies worth a fraction of todays value, times they are a changin
I get all that. The fact still remains that the headline suggests that the accompanying article will explain exactly how the figure of 16 billion was reached. I was curious to know how they got that figure. And yet, I’m still none the wiser. Should it have a large valuation? Obviously the answer is yes, and you have explained that both in the article and your comment. But we’re still no closer to understanding the 16 billion valuation. Sorry, but I’m a stickler for this kind of thing. If you know how, then say it and let the headline reflect it. If you don’t, then don’t mislead the reader into thinking you do, only to leave the reader empty handed.
If everyone on snap chat had a super sweet party = 16 x the amount of willie photos ever sent = 16billion
On Sesame Street their number of the day is 16 x 1billion. Tomorrow it will be $43 Billion
I’d say the long term bet is when an analyst bets a pension fund on this.
I’d be nervous.
It could only ever be a trade sale to Google or the like …. Its a very limited product. If a pension fund manager bought snapchat, they should be sacked.
Nothing on this Earth deserves to be valued at €16 billion
So what’s your idea of a max cap value so Andy?
You haven’t seen my willy.
If I owned it I would sell now
Fapchat
It deserves about a 16 CENT valuation. It’s ridiculous, and hopefully a fad that will die quickly. If the world is lucky, some evil company will pay 16B, then go out of business when people realise how stupid Snapchat is.
Never seen such anger directed at a mobile phone application before! Got dumped via Snapchat did you? :-)
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