Snap's IPO valuation was approximately $24 Billion, the highest tech-startup IPO since Twitter's in 2013. That's a high for a company that has never turned a profit.
To put it in context, that valuation puts Snap above the market capitalization of many companies you would recognize. For example:
via Statista
So what gives Snap (and other social giants) such high valuations?
Is it their growth velocity? Is it simply the animal spirits of the market trying to catch that next big wave?
I've never used Snapchat before, so I asked my son what he thought about Snap's valuation. Here is what he said:
Snapchat has shown that it's a new frontier (and a huge potential profit center). They've even branched into wearables.
When I first started using Snapchat, it was mainly used to exchange silly faces ( and yes … naked pictures). However, it’s evolved a lot since then.
Snapchat has aggressively worked with other companies to expand their influence, and they have added multiple avenues for companies to advertise their product.
In trading, we often talk about statistical arbitrage. Gary Vaynerchuk has a similar idea that relates ... it's essentially attention arbitrage. Something Snap is very good at.
Snapchat allows companies to grab attention the way ads used to in the old days. The difference is they're doing with the newly important Millenial demographic, and they're doing it during moments that those brands wouldn't otherwise have a cost-effective opportunity to make an impression.
Think about all the times you see young people staring at their phones .... during TV commercial breaks, while ignoring parents, waiting for food at a restaurant, or standing in line. Therse are great times to send the right message.
Snap makes that possible, and is building ad space on a new frontier. So, even if there's currently little monetization, it's building momentum, and a massive infrastructure that can be monetized later.
I still think $24 billion is a lot. But, Snap is doing something right.
How long did it take for Amazon to make a profit? And, now, 8-out-of-10 Americans purchase from Amazon at least monthly.
In my opinion, the smart money is on Snap being successful.
The world is changing and growing at an exponential rate. It's not just Snapchat ... and it's not just Google.
The old way doesn't work anymore. The game, the rules, and the players have all changed.
It will be interesting to watch social media companies who used to be one-trick-ponies try to become multimedia powerhouses.
Will they live up to their valuation? We'll see.
What do you think?
