Snapchat’s creators are becoming potential billionaires, riding the popularity of an app that earns virtually no money.
The messaging service Snapchat originated as a “disappearing message” app — a way to share photos without worrying that said photos could come back to haunt the sender later — but it’s quickly taken off as one of the most popular social media platforms for young people. On Tuesday evening, the Wall Street Journal reported that the Silicon Valley venture-capital firm Kleiner Perkins Caufield & Byers had agreed to invest $20 million in the company.
The firm’s valuation of Snapchat was close to $10 billion.
Up until now, Snapchat has generated “virtually no revenue,” as the Journal noted, but this ongoing round of venture-capital funding is meant to change that.
As Forbes, Business Insider and other outlets have reported, Snapchat is looking at a few options to generate revenue going forward: advertising, the mainstay of digital enterprises; virtual “gifts,” which users would pay for and then send to friends; and even, potentially, leveraging the platform to conduct money transfers.
It might seem crazy that firms are giving Snapchat such astronomical valuations with no firm revenue as of yet (Tuesday’s $10 billion valuation came on the heels of a $7 billion valuation from Russian firm DST Global), but Snapchat has one thing any social network needs — a healthy user base — and it’s rapidly gaining ground among younger users who are abandoning Facebook.
As the analytics company comScore noted earlier this month, Snapchat is poised for explosive growth as social media becomes ever more mobile-centric.
“Long term success in the social media sector is no given, and there are certainly several examples of companies that have both ascended into the stratosphere of successful tech companies and of ones that are no longer relevant,” comScore’s analysis stated. “Achieving critical mass is an important step in eventually reaching the winner’s circle, and with Snapchat currently at 18 percent penetration among smartphone-using adults it would appear to be right in that sweet spot. If usage begins to accelerate significantly from this point forward, who knows how big it can eventually get?”
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