Breaking Down Snapchat’s Valuation

While theories run amok on the validity of the USD 3 billion valuation for Snapchat, an obscure clause in their Terms & Conditions reveals the storage of meta data is prevalent. The algorithm in play attempts to make sense of the various images & texts shared to create a profile around its users, allowing for market insights into the psychographics of various user bases. Whether this data will be used for ads is uncertain, but attaining a psychographic profile in the era of digital uniqueness is a game changer. More so, this is evident from the work of Professor Americus Reed at Wharton, working with athletic footwear brand Saucony and gaining an insight (after months of research & focus groups with high school students) that the brand is favored as “legit” and the exact opposite of a “sell out” like Nike which (according to the survey), while popular and memorable, had little to no respect in serious athletic circles.

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This is just the tip of the iceberg that Snapchat is sitting on at the moment so lets examine the facts. Facebook is now closing in on $150B market cap with a primary source of revenue from ads while noticing substantially promising growth in mobile ads. If Facebook has internally realized that most activity is generated around photos and comments, and Snapchat traction numbers are healthy; then USD 3 billion may be fair especially given a lot if internal, unpublished growth and traction numbers that only the two parties are privy to.

Having said that, it takes a lot of great execution to actually build a profitable company from those traction numbers that justifies that kind of valuation. Many can falter and would regret denying such offers.

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