Saturday, November 26, 2016

Snap Inc. Valuation

Snapchat (recently renamed Snap Inc.) has filed for an IPO reportedly set for Q1 2017.  Snap is seeking a valuation of  $25 Bn according to reports at Bloomberg . While we do not have access to Snap's financials since it is not a public company, the question arises if such a rich valuation of 25X Forward Revenue makes sense at all.

"At $25 Bn, Snapchat would have roughly the same value as Linkedin and HP."

What is Snapchat and how exactly is making money ? Snapchat primarily sells video ads. It also sells branded "filters" and most recently, a Discovery feature for mass marketers. Snapchat selling point is its demographics where users ages 18 to 24 account for 70% of the reportedly 235 MM it now has. If that holds true, Snapchat is the first of the major social network that has built upon a targeted -in this case, youngest- demographic base. Is that worth paying more for? Facebook did not have such a demo base when it went public in 2012. 

It can be argued that any of those on Snapchat are already on the vaster platform (FB). Are they not consuming the ads on that platform ? If they're not, then Snapchat is a direct threat -competitor to FB.  

The churn rate on Snapchat could be considerably higher than FBs or any other social network. People continue on FB as they age, while being on Snapchat  may become a distraction to older adults. Older users are likely to stop sending self-erasing videos of themselves. Unless... Snapchat has something more to offer. Does Snapchat offer a more personalized experience than FB ?  I'm not even sure i10 seconds videos are videos in the proper sense, or maybe they are videos in their own category, "ten seconds shorts".

It is obscure why advertisers would pay some of the highest rates in the industry for users who "have no strong brand loyalties" [user description according to advertisers' research]. Perhaps there is evidence to the contrary and those users engender early steadfast adoption, but I am not aware of it.

More of Snapchat : at Tracxn

Thought of the day

Thought of the day

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