Snapchat Valuation Bubble Bursts
This one may already be starting to happen.
Snapchat, the popular messaging app that allows users to send 6 or 10 second messages to their friends, and then have them disappear, has been all the rage recently. Facebook (FB) recently tried to acquire the company for $3 billion, while Google (GOOG) reportedly offered $4 billion for Snapchat.
Based in Los Angeles and co-founded by Evan Spiegel, Snapchat recently raised $50 million in new funding, giving the company a valuation of approximately $2 billion. Snapchat had hoped to raised $54.5 million.
Though I'm not a venture capitalist by any stretch of the imagination, it does seem odd to me that the company would raise money at a valuation lower than what Facebook and Google were offering to pay.
Snapchat's potential business model is difficult to see right now, given the messages disappear after users open them. It's not an open platform, a la Twitter or Instagram, which sold to Facebook for roughly $730 million. It will likely experiment with in-app purchases and potentially even ads, but the advertising model is different than Twitter, Google or Facebook, simply because the messages go away.
Given the exceptional run-up in equity markets in 2013 and increased confidence in Silicon Valley, it's hard to see how valuations go higher if the business model doesn't support it.
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