Snapchat, the social network that lets its users send messages to each other that disappear in a matter of seconds, has turned down two offers in recent time reportedly. A three billion Dollar offer from Facebook, and a four billion Dollar offer from Google.
The big question that came to my mind immediately after I read about this was why did the company turn down the offers, and what makes the other companies think Snapchat is worth that much money?
If you look at Snapchat from a third-party perspective, you see a social network with a considerable number of users. That's the companies strongest asset and what makes it attractive to larger companies. Other than that, it has little to offer.
The application and technology itself can be replicated for a fraction of the price that companies seem willed to pay for Snapchat, and while companies may be inclined to add the engineering staff to their own, it does not really justify this amount of cash.
What weights more in my eyes is that the service is not generating revenue right now, and that it is not clear how it will ever do so. Sure, it could display ads to users of its service, or launch a premium version that adds other features to it that users may be interested in. And those possibilities play a big part in its evaluation certainly.
But that has not been launched yet. So, we are back to square one. So how many users does Snapchat have? The company revealed in a blog post in October that 350 million Snaps are sent every day by users of the service. Information about the user base have not been published publicly though.
So why have the offers been turned down by Snapchat? The most likely explanation is that the company and its investors believe that they can get more for it. The daily Snaps increased this year along from about 60 million in February to 350 million in October showing a strong growth.
If the user base and its engagement is still showing strong growth signs, a decision could have been made to keep the company independently run for now as its evaluation will increase if that is the case.
The question that we have not looked at yet is if the company is worth the three or four billion Dollars that Facebook or Google would have paid for it, or if it is worth more as its founders and investors believe it is.
You could say that it is, considering that other companies would have paid that much for it. From a bystander's perspective, it seems like an awful lot of money for a company that generates no revenue at the current time. From a strategic point of view, it could make sense nevertheless, provided that users do not leave ship once the service is monetized.
What's your take on this? Is this a new bubble that is going to burst any time soon? Or are those evaluations making sense?
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Ghacks is a technology news blog that was founded in 2005 by Martin Brinkmann. It has since then become one of the most popular tech news sites on the Internet with five authors and regular contributions from freelance writers.