Business

Cheung: Snapchat could reach potential $19 billion valuation, has yet to do so

Last week Snapchat announced it would be beginning a new round of funding aimed at raking in $500 million in a capital fundraising effort to give the company the resources to build new features and revenue-making models. The money would put its total valuation at an alleged $19 billion, according to a Bloomberg report.

That valuation puts a price tag on Snapchat that’s worth almost as much as WhatsApp when Facebook purchased it last year. It also makes it the third largest company backed by venture capital firms, behind only Uber and Chinese smartphone maker Xiaomi.

Think about that: $19 billion for a company that specializes in disappearing photos and videos. There’s good reason to call that estimate crazy but make no mistake — Snapchat has the potential to play ball with the big companies in the social media industry.

Let’s start off with some skepticism. It’d be nice to see Snapchat back up that $19 billion with some metrics like the number of active users or dollars earned in advertising revenue. Unfortunately, the company is private and does not disclose the economics of its business. That makes it tough to put a finger on exactly how much it should be worth.

Additionally, as a user — and pretty active one at that — I’m a bit confused as to the revenue streams for the application. The company once tried to create sponsor-created Snapchat stories that were pushed to every user. But just last month they abandoned the idea and created the Discover feature, where users can browse story-like content from companies like CNN and Food Network. Oh, and there’s also Snapcash, a feature where users can send money to other users by linking their debit cards.



It remains to be seen just how much money these features are making, but current users aren’t exactly buzzing about sending Snapcash to their friends or the new Food Network Story on Discover.

But at the same time there’s no doubt that Snapchat has the potential to make money. A lot of money. A comScore study from June of last year found that Snapchat was the third most used social media application among 18–34 year olds, behind only Twitter and Facebook. It engages people because it begs immediate attention; snaps from friends more or less require a response because it’s a “chat,” whereas Twitter and Facebook are static feeds that you can choose to interact with or ignore.

The geofilter function is a huge determinant of whether or not Snapchat can strongly monetize its business. I think Snapchat needs to focus on its core business: creating Snaps and Snapchat stories. Sponsored geofilters are the best way to have users engage with advertising simply because they’re cool. Imagine going to Chipotle and adding a Chipotle geofilter to the generic Snapchat of your burrito bowl that you’re sending to all your friends. You’re willing to interact with that advertising only because it’s relevant to both where you are and what you’re doing.

Snapchat knows this because it’s opened its geofilter platforms to advertisers. Recent music festivals like Tomorrowland have paid for Snapchat geofilters for users to embed into their snaps to show their friends how much fun they’re having. But if Snapchat really wants to make the big bucks, the company should slow down on investing into supplemental products like Snapcash and Discover and add an integrated marketing component to its core Snaps and Snapchat stories.

Regardless, Snapchat is an incredibly young company and if it finds the right footing in the right revenue models, I have no doubt that Snapchat will become the next big player in social media. And could someday be worth even more than $19 billion.

Brian Cheung is a senior broadcast and digital journalism and finance dual major. His column appears weekly. He can be reached at [email protected] and followed on Twitter @bcheungz.





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