

Snapchat Said in Funding Talks With Alibaba at $10B - antr
http://www.bloomberg.com/news/2014-07-30/snapchat-said-in-funding-talks-with-alibaba-at-10-billion-value.html

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ulfw
It seems, we are seeing the repetition of the first tech bubble when it comes
to overblown valuations. Those valuations aren't really on realistic future
earning potentials anymore. They rather are on future expected selling price.
The idea being that 'I buy something for 10 times as much as it is worth, in
hopes that I find someone who will pay me 20 times as much as it is worth'
etc. Obviously that can't go on forever and the bubble burst might be as
dangerous and devastating as the first one, unless valuations magically cool
down.

~~~
panarky
Just because it's expensive doesn't mean it's a bubble.

Remember the outrage at Instagram's billion-dollar valuation? Looks pretty
cheap now. Same thing with Facebook, Netflix, Uber. Snapchat's simple idea is
every bit as transformative as the simple ideas behind these companies.

Here's what smartypants bubble-callers were saying in 2004 about Google before
their $2.7 billion IPO[0], also built on a pretty simple but world-changing
idea:

"Pent-up demand for hot tech stocks is driving Googlemania."

"There are serious questions about Google's long-term viability"

"Word has it that Microsoft will feature an immensely powerful search engine
in the next generation of Windows, due out by 2006."

"Taking down Google with better search is in [Microsoft's] strike zone."

"Google stands a good chance of becoming not the next Microsoft, but the next
Netscape."

"It's tough to see why many Windows users would even bother with Google."

"Yahoo! has the advantage of being able to cull demographic data from its
millions of subscribers and match them with advertisers."

"Google relies on ads for 96 percent of its revenue making it a one-trick pony
vulnerable to the swings of the market."

Any of this sound familiar?

[0] [http://www.newrepublic.com/article/politics/bubble-
bath](http://www.newrepublic.com/article/politics/bubble-bath)

~~~
nilkn
You're not really making me feel any better about this. Google's IPO was only
2.7 times the purchase price of Instagram? Even more, Google's IPO was a
fourth of the current valuation of Snapchat? Those numbers don't feel right to
me. Google also was actually profitable at the time of its IPO. It had a
_real_ business model.

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wf
Alright, I really can't take it anymore. Is there any good literature
explaining why users of Snapchat are worth this much? From my limited
perspective it seems a lot of the services valued so highly for their user
base have an incredibly hard time generating revenue from those users,
particularly from short lived services like Snapchat. I keep seeing "promise"
and "expectation" but what are those things when you're talking money? I read
on NBC News estimates put the number of users at 50-70 million. What kind of
ad revenue can you expect from that many users in an app where interactions
are short lived on a single screen? What would be the conversion rate on IAP?

I'm extremely skeptical this company could be worth this much. 10 billion / 70
million is $142 dollars per user. (Supposedly this metric means something as
FB paid $42 per user for Whatsapp?)

Not to mention, how does a company with the leadership this company has get
valued this highly? I would think when the Controversy heading takes up 70% of
your Wikipedia page that would negatively impact your business, obviously this
is having the exact opposite effect though.

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onewaystreet
For investors, controversy is seen as meaningless (and sometimes as a good
thing) unless it's hurting the business. In the case of Snapchat, it hasn't.
As for making money, one shouldn't judge their ability to do so based on how
the product looks today. More than half of Facebook's revenue now comes from
mobile, a product that they only perfected a year ago.

~~~
wf
It seems like Facebook had a relatively clear path with already having the
news feed. Keeping users on a single page absorbing information with ads
intermingled unobtrusively, but with Snapchat I'm in any of three views for
just a few moments before I close the app again; all that to say, I just don't
think it's a very good comparison.

~~~
onewaystreet
That's the point I was making. As it is now, it's hard to see where they would
fit in advertising or whatever. It's better to look at the product as a
foundation. Having tens of millions of users using your product multiple times
a day is a good starting place to build on.

~~~
nilkn
So apparently a mere starting place, which may or may not yield any actual
profit (in an unspecified amount) via an unspecified method at an unspecified
date in the future, is worth $10,000,000,000, about four times as much as
Google's IPO, keeping in mind that Google had a real profitable business plan
at the time?

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bsenftner
I don't understand this valuation - it's makes no sense to me. Can anyone
explain how SnapChat could be worth even a fraction of this? Where is the
value in SnapChat's user base, future blackmail? It's not like someone using
SnapChat is in the appropriate state of mind to follow any ads in the app. I
don't get it...

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acoyfellow
It's a communication platform that the younger generations are using as their
primary form of communication. That is big.. not saying it's $10B big, but
SnapChat has the chance to become something larger than just stupid selfies.

~~~
Iftheshoefits
What you wrote sounds to me like this: if SnapChat were something else, and
not (just?) SnapChat, maybe in the same "space", it could be worth a lot.

Edit: I am deeply skeptical that a market filled primarily with people who
have little or no income will support an ad-based revenue stream valued at
$10bn. I would be even more skeptical if the revenue for SnapChat were
supposed to come from a pricing structure.

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joeblau
A lot of people seem to have a misunderstanding of why Snapchat is worth so
much. At first, I didn't get it either, but I think there is one main reason
for this high, and what I feel might be justified, valuation.

"Single mode visual media capture" [1]. You might be asking "WTF does that
mean?"; Well that's the title of Snapchat's patent which was granted for
haptic video recording. That means all of the apps where you press and hold to
record a video could face legal action for copying Snapchats technology. So if
you look at the list, you've got:

    
    
      - Facebook's Slingshot, Instagram, Bolt
      - Twitter's Vine
      - Taptalk
      - Many others
    

One of my friends works for the USPTO and he says that a patent portfolio is
the difference between a multi-billion dollar valuation and a multi-million
dollar valuation. With the backing of Alibaba, Snapchat could essentially shut
down all haptic recording apps or force clone companies to pay a licensing
free for the technology.

[1] -
[https://www.google.com/patents/US8428453?dq=snapchat&hl=en&s...](https://www.google.com/patents/US8428453?dq=snapchat&hl=en&sa=X&ei=kbKhU4quJNiXqAbFs4KQCw&ved=0CCUQ6AEwAQ)

~~~
npizzolato
Ah, yes, hold down a record button instead of pressing it on and off! What a
grand innovation worthy of a patent!

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badloginagain
Sorry if this is a dumb question, but how does Snapchat make money?

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free2rhyme214
They don't currently but they will have to display ads eventually like
Twitter, Facebook, Pinterest, Tumbler, and the like because a business can't
run on VC fumes forever with stockholders.

~~~
nkozyra
And to iterate a bit on my last point ... there are spaces where advertising
is inherently valuable, where you have a captive or semi-captive audience ...
I don't see messaging (at least in the mobile space) as particularly banner-
friendly.

Now obviously I wish I knew how to target the mobile messaging market; I
don't. But it seems like you could see mass migrations based almost
exclusively on presentation the way MySpace rapidly lost to Facebook.

~~~
badloginagain
Jesus they're going to have Microsoft send me a movie ad of their next flop.

I don't see why they didn't just take FB's money at what has to be their peak
relevance. The only advertising opportunity I really see is unsolicited snaps.
But I don't see users liking that.

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theklub
Ok, who wants to create the next chat app?

~~~
nkozyra
Everyone. And that will be the problem.

Just be prepared for a bunch of "think Snapchat, but for ..." or "Snapchat
meets ..." proposals in the coming months / year.

~~~
billmalarky
I can already see the craigslist "entrepreneur" billion dollar ideas...

"It's like snapchat, but for dogs!"

Of course as the "coder" you will only get 1% equity.

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haosdent
Alibaba...

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Alupis
My company has already created an 11main.com (Alibaba's first US ecommerce
website) account and setup a significant amount of our catalog. The site is
still in private invite only -- but hopefully will go public soon.

We expect Alibaba to come into the US on a storm. They are huge - they have
capitol, and they can afford losses in the hundreds of millions per quarter
just to compete with Amazon (and snuff out part of their market) - amazon just
posted an 800 million USD loss last quarter without flinching.

Their revenue last quarter was greater than Amazon's and eBay's combined.

I think we are about to witness a clashing of the titans in a big way.

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mkaziz
I'm just glad that Amazon has competition. I love them, and I don't want them
going the way of the Comcast-style behemoth.

~~~
Alupis
There's already a lot of dirty things Amazon does -- try selling in the same
sector as them. You can't compete with a company that is willing to take tens
of, sometimes hundreds of millions in losses for years just to ensure 10 years
down the road, they have a controlling interest.

~~~
nilsimsa
It is still different. Comcast got to where it is by buying out competitors
and with a monopoly in providing cable within a city. There is no choice to
shop for alternatives in many cities. With Amazon, there are multiple
competitors. It is just that Amazon is willing to take little or no profit on
an item.

