Is SnapChat Worth $3 Billion?

Snapchat Logo

Snapchat Logo

SnapChat recently rejected a $3 billion offer from Facebook. With rumours of offers from both Tencent and Google. The trendy app is certainly popular among teenagers (where Facebook starts to lag behind). But they have no revenue and no discernible plans on how to generate said revenue. Their clientèle isn’t exactly the most wealthy and they could very well leave the app in case it starts charging money.

Yesterday an user on Hacker News asked: Ask HN: How much do you think SnapChat is really worth?

So far the replies have ranged from $0 to $3b+.  No one really knows today how much it is worth but most seen hesitant regarding SnapChat’s valuation. It simply has no revenue, to quote the current top poster:

$0

I hadn’t heard of SnapChat until this acquisition story broke. I guess I’m out of touch or something?

Anyway, no revenue and no real hope of revenue = $0. VC can blow smoke up your ass until they collapse, blue in the face, but it’s not a winning proposition.

Ignoring the distaste for VCs that the poster has, it is a fair point. SnapChat will have a hard time to actually generate the revenue to merit a $3 billion valuation.  My comment on the matter leads more towards another issue (in my mind): Lawsuits. Teens are the demographic that heavily use SnapChat, sending photos to each other. Often times they  send nude photos…. I can just smell the lawsuits coming. Maybe not now but sometime there will be a lawsuit, a very expensive lawsuit.

That should worry every corporate lawyer. There are immense risks in my opinion. What is it worth? Who knows, to the right buyer it may be worth $3+ billion. I doubt they will generate much revenue though. The younger audience is notoriously price sensitive, if they start charging money for the service they are going to end up in deep trouble. They don’t store much private information (I hope…. Aren’t those photos supposed to disappear!) about their users, which makes selling relevant ads harder.  Below is my comment on the matter in that HN thread:

The problem I see with Snapchat is that:

a) currently no revenue, I imagine it is harder to monetize Snapchat than Facebook et al. But it is not my area of expertise so I can give them the benefit of the doubt that they can monetize it.

b) They are one lawsuit away from blowing up. I can see a future where they get hit with a child porn lawsuit or something similar. I assume they have good lawyers but it is still a rather significant risk.

I think it was a mistake not to take one of those billion dollar deals but I have been wrong before. If they can monetize their service and avoid lawsuits it could become huge.

-P

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