Snapchat recently went public and had one of the biggest IPOs in years. Assuming that you’re not very familiar with Snapchat, there are a few things to know.
People (especially teenagers) like Snapchat because, if photos are going to exist only briefly, they need not be as carefully composed (AKA “faked”) as with Instagram or Facebook. As such, sharing on Snapchat is more honest, more like real life.
Like Twitter, Snapchat allows one to share whatever’s on one’s mind. Unlike Twitter, which is text-based with photos bolted on, Snapchat is photo-based, with an option for a bit of text. Since our brains are more visual than text-based, Snapchat wins.
Since our brains are more visual than text-based, Snapchat wins. Click To Tweet
Data confirms the story. There will be roughly 500 million Tweets today (not increasing), vs. 2.5 billion Snaps today (growing rapidly). That’s why Twitter is valued at about $11 billion, and Snapchat is already valued at about $25 billion.
Snapchat has added dozens of features which bring it into direct competition with Instagram and Facebook. Meanwhile, Facebook and Instagram have added countless features to compete with Snapchat.
Who’s going to win you wonder? It’s impossible to predict, but Snapchat has a tough hill to climb (like, say, Olympus Mons). If they can almost triple revenues in 2017, they’ll reach $1B. That’s revenues, not earnings. Most companies are judged by PE, price-to-earnings ratio, and 25 would be high. But PR (price-to-revenues) at 25? Amazing! If the team at Snapchat can’t keep driving stratospheric revenue growth (and generate associated earnings) for years, it’s hard to see how they will justify this valuation.
It may turn out that Snapchat is good at making investors’ returns disappear, just like Snaps.