napchat has virtually no revenue – so how has a recent round of funding valued the company as high as $10 billion?
Snapchat has had a remarkable journey over its short lifespan. Just two years after the company was founded, chief executive Evan Spiegel turned down a $3 billion acquisition offer from Facebook – all at the tender age of 23. It seems like he might have been right to do so, since it appears the social messaging app firm is now worth nearly $10 billion.
That’s the valuation accepted by venture capital firm Kleiner Perkins Caufield and Byers, anyway. The Wall Street Journal (WSJ) is reporting that the company has agreed to invest in Snapchat as part of the social messaging service’s ongoing bid to gain investment from external sources.
According to WSJ, sources who are familiar with the events say Kleiner committed up to $20 million for Snapchat as far back as May. Another strategic investor is also reported to have agreed to inject some cash.
Two individuals even told WSJ that Russian investment company DST Global invested earlier this year at a valuation of $7 billion. If the company has really gained more than $3 billion in value over just a few months, it’s an extraordinary rise – but then, given Snapchat’s fast growth trajectory in the past few years, it may not even be surprising.
Kleiner would have a stake of less than one per cent in Snapchat, though the Journal believes the investment is more geared towards improving the investment firm’s image in the venture capital market. Yet, what is most surprising about the reports, is that companies are ploughing millions into a young firm that still has barely any revenue.
At the moment Snapchat is free to download and use, and it is difficult to determine exactly where the company is drawing any income. But its popularity among young adults and students – a key target market for advertisers – means that investors see plenty of potential.
The company has also reportedly been working on a new content service that could see ads, videos and news added to the Snapchat mix. It’s certainly preferable to introducing a subscription system. But Snapchat has plenty of competition in the social messaging market, and it will be interesting to see whether its loyal users jump ship to the next free and ad-less app.
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