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.
I'm not saying that's the case here, but it really is not hard to imagine. It's quite obviously possible when you're giving away physical things for free. The only difference here is that free software is a hell of a lot cheaper than free cupcakes, but the cost still isn't zero.
How much is "Email" worth? If you could "own" Email, but not have any way to monetize the transport of messages, and no way to charge for the service, how much is it worth solely because billions of messages are transmitted with your service daily?
Since when are "messages" valuable? Come on, who wants to own a Protocol?
The big risk for Twitter, Snapchat, and some degree Facebook is the more money they attempt to make off of users, from advertising, the easier it is for someone else to start a less intrusive competitor. The cost of creating, launching, and maintaining a service like this will keep dropping.
Facebook purchasing Snapchat is just creepy. They think delete=hide.
Unless they've got a very clever model that is more advanced than what you've described or that FB or Twitter have ever used it's a very long shot. Unless the owner has a personal issue with FB and didn't want their money for this reason I do not believe this was a sound business decision.
I'd love to be wrong but I don't think I will be in this case.
You really think Snapchat deletes the images? Lets pretend they did, I bet the NSA keeps a copy.
laughable.
He doesn't have a job yet (and never had a job before), but by any measure everyone that knows him says he's extremely talented. And now he's even getting huge job offers from Google and Facebook.
Would you say that you wouldn't make that investment? Is he worthless cause he has an upcoming rent payment due and also has to feed himself?
Similarly, lots of companies run by smart people don't live up to their potentials, or are not lucky enough to be popular long enough to make billions of dollars.
All of those factors (risks) have to be taken into consideration, and you price it as such. It's still a > zero figure.
The point of the question is whether you expect the person to earn enough that getting 50% of their life income would be worth 100, 1k, 10k etc. today, not 'how likely that person is to actually keep the deal'.
This only works if, in addition to all of the other possible risks we all face in life, this CS grad could simply disappear because a CS student in the new freshman class is more interesting.
Snapchat is risky because it's audience is as fickle as they come.
In either case the point was to illustrate that, all risks considered, snapchat is still worth a lot of money. I have yet to see anyone (HN commenters, tech press) argue about what their valuation should be, which seems like the reasonable follow up to "It should not be $3 billion".
We can agree that its not zero, then what basis can we use to agree that $3 billion is inaccurate?
Facebook is not paying for the software. A very good hacker can put together a snapchat app in an afternoon. Facebook is paying for the traction and the fact that the people who are using both services are not exclusive set of people. therefore, the more a user spend time on snapchat, the less she spends on Facebook.
As already mentioned, this is not about how much they are making now, it's about how much they could potentially make in the future. Facebook knows this better than you and I because they've been there.
Any dollar that SnapChat makes in the future is potentially a dollar facebook would have lost and that is what they are trying to protect.
FB can throw $10b at snapChat and some people (me not included) will still find sense in it. Look, if on March, 2006, a 'crazy' billion said he has envisioned that twitter is the next big thing and threw $5b for a 99% stake, everyone would have called him shit crazy but in just 7 years, he would have made a cool $16b on his investment.
No matter what you think about how silly the service is, its ability to be monetized is where the value lies.. In a logical world, an investment in coca-cola shouldn't be considered a safe one at all, but here we are!
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.
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?
You actually don't need the Ctrl key. Just PrintScreen will also do the same thing.
WindowsKey + PrintScreen is a nice idea. Problem is, I usually do Alt + PrintScreen. Adding the Windows key doesn't do anything in that case.
It doesn't disappear, and whilst it might disappear off their servers I can guarantee that won't be the case in the future. At some point a court is going to force SnapChat to preserve a user's photos on their systems, probably someone under a wiretap or surveillance. I wouldn't be totally surprised if this hadn't happened already.
What this all means is that companies like Snapchat are all hype geared mainly for the ones with vested interest to get a quick cash out. There is nothing "lifetime". Kinda like the stock market where you see volume (demand) move thinking that supply will drop and price will go up so you make stupid decisions to jump in.
As for Facebook, maybe Snapchat is worth that much to them. To Facebook it would increase their users engagement and spin the marketing engine. For the public market Snapchat is an over valued company based on speculation, hype and fueled by those with vested interests. There really is nothing stopping competitors from entering this space. There is no IP in timed photo sharing. Unless I missed something?
The valuation of companies with no record of profits and no easy path to profitability is utterly ridiculous.
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" :)
There is an actual metric to judge your value by, rather than using fuzzy valley metrics.
How much were eyeballs worth back in 1999? I don't quite remember. Was it more or less than $50 per eyeball?
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.
Facebook made an offer of $3B, all that implies is they think Snapchat is worth more than $3B.
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.
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?