Monday, November 18, 2013

Is Snapchat 4 Times More Valuable Than Instagram?

Crazy company appraisals are completely normal in the world of tech, that is a fact. So, should anyone really be surprised that last Wednesday's report that Snapchat, - the tiny little company that launched a single app with zero income - actually turned down a 3 billion dollar offer from Facebook? Should we also be amazed at the fact that some investors value the start up at $4 billion?

You can make some insane comparisons on the sale prices for other companies. In the film world, for example, Lucasfilm and Marvel both sold to Disney for $4 billion. We are talking about two companies that have created decades of unforgettable content. Now, think about this: Those too companies are both only equally as valuable to our society as the app that your boyfriend uses to get inappropriate photos from his female friends. That, my friends... is blowing my mind at the moment.

Ok, so that was a bit of a stretch with that comparison. Movie studios tend to make smarter and more conservative investments while tech giants have a history of blowing gigantic amounts of money. There is so much money flying around this industry, so I suppose it has to go somewhere. Maybe this is why new companies who have peaked at their fifteen minutes of fame can command such high prices.

The only way to say for sure if Snapchat is overvalued would be to compare a more similar situation with other ridiculous sounding purchases. Take a look at the other only zero revenue start up that Facebook tried the same thing with and succeeded. That would be Instagram.

The sale price for Instagram was initially set at $1 billion dollars, which later went down considerably to $715 million because of their stock declining more than expected. At the time, the $1 billion seemed like an absolute steal given their staggering growth over the last two years with another 120 million users and the launch of their first Instagram ad.

To justify the fact that Snapchat is actually worth what it is said to be valued you would have to say that it has the potential to become four times as valuable than Instagram! Here is a look at both companies:

Instagram's last offical user count was 150 million users. Snapchat has not even revealed their user numbers. According to a study in October, 9% of cell phone owners use Snapchat, which would put them at about 30 million users. An analytics company called Onavo estimated that 38% of iPhone owners use Instagram, and 21% use Snapchat. Both numbers appear to be growing - Instagram by 2.5% a month, and Snapchat by 4%. This tells us that it will take a while for Snapchat to overtake Instagram with iPhone users.

Now, here is another crazy fact that I'm about to throw at you: Instagram users post 55 million pictures every day on average. Snapchat users share 350 million pictures a day. That is really close to being the same as Facebook, and it is a staggering six times as much as Instagram. If active you engagement is the key factor here then I guess Snapchat might be undervalued.

The Big Picture: To be able to truly tell what a business is worth, you have to look at how long it will last. Will we be using Insta' for years to come? It's pretty addictive, if your pictures are good then they get 'likes', and you feel like an artist every time you put a filter on your picture. And, if you look at all of the pictures that you and your buddies have posted over the last year, you feel like you had a GREAT YEAR! All of your memories are stored for you to look at and remember whenever you want.

With Snapchat, your pictures are gone forever in ten seconds. It's literally an app that throws away your memories. You can get them back however if you pay, but that is another story in itself. Snapchat will continue to grow with teens who are really bored or super in to sexting, but is that just a fad? It sounds really goofy to say that something that is dwarfing Instagram's user engagement by 6 times and growing is just a fad, BUT... I think that is what the app is going for. The whole idea is the definition of a fad: it literally holds your attention for 10 seconds and then it's gone forever.

Is Snapchat going to overthrow Instagram? We'll have to see. But I think that sounds like a really big task for any company to take on.