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Why Snapchat Is Worth $19 Billion (Or More)

Why Snapchat Is Worth $19 Billion (Or More)
Image credit: Reuters | Lucy Nicholson
The Snapchat logo is seen on the door of their headquarters in Venice, California.
3 min read
This story originally appeared on Fortune Magazine

An executive—his/her name isn’t important to this tale—stopped by Fortune's New York headquarters sometime last week. At one point during our conversation, Snapchat came up.

“You see what Snapchat’s doing lately?”

“No. I try to limit the number of messaging apps on my phone. Late adopter.”

“What they’re doing is amazing. The new Discover feature? They’re so far past ephemeral messaging.”

The enthusiasm was infectious. (And no, the executive didn’t work for the company in question.)

On Wednesday news broke that Snapchat was reportedly raising a new round of funding that would value the Los Angeles company at $19 billion. It’s an astounding figure if you think about it—a few billion short of the current market value of Tesla Motors, Elon Musk’s groundbreaking electric car company, and ahead of Symantec, by some estimates the world’s leading cyber security company. It would make Snapchat the third-most valuable tech startup that does not trade its shares publicly. (To see a comprehensive list of those companies, visit the Fortune Unicorn List.)

When the news broke, the first question that usually arose was some form of the following: “Nineteen billion dollars for a disappearing-messaging app?” Translation: All this for a stupid mobile app that teenagers use as a back channel to goof off with their friends?

In a word, yes.

Snapchat, which launched in 2011, reportedly generates little revenue and has yet to turn a profit. But the broad strokes of its business model are well-worn: marshal a captivated audience, sell advertisements against it, profit.

The latest reports put Snapchat’s user base at more than 100 million people, though the exact number has not been publicly disclosed and could be well beyond that. Compare that to LinkedIn’s roughly 200 million (market cap: about $33 billion), Twitter’s almost 300 million (about $30 billion), and Facebook’s 1.4 billion ($212 billion) and the math—preposterous as it seems—starts to make sense.

(It also shows how aggressive Facebook has been in preserving its lead: It paid $19 billion for WhatsApp, which has about 700 million users, and $1 billion for Instagram, which now has more than 300 million.)

Snapchat CEO Evan Spiegel has already indicated that his company is beginning to get serious about revenue; he said as much at an industry conference in October. If the company can demonstrate that it can figure out a way to make money at least as well as its peers—never mind the fact that its customers are almost entirely within the age 18-34 demographic that advertisers have traditionally most coveted—$19 billion isn’t a goal; it’s practically a done deal.

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