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Is Snapchat Really ‘Total Junk’?

The social media giant’s valuation is under scrutiny ahead of its IPO

24Jan

Almost since its rise began, Snapchat has divided opinion. The ephemeral photo-messaging app has rejected multiple advances from Facebook, held firm in the face of Instagram’s encroachment on its features, and has become one the most eagerly anticipated IPOs of recent years. Snapchat surpassed Twitter in terms of daily users in 2016 and has found genuine ways to monetize. The offering, which could see the firm valued as high as $25 billion, has raised questions of whether Snap will follow Facebook’s route, or forge their own path.

Whatever the outcome of the IPO, some are unconvinced by Snap’s staying power. Famously bold analyst Trip Chowdhry - who, in 2013, said ‘Innovation at Apple is over’ - has declared Snapchat ‘total junk’ and ‘hyper-inflated.’ ‘We are at the tail end of the social media boom. Novelty is giving way to fatigue,’ Chowdhry said, valuing Snapchat at less than $500 million and sparking a wider debate around the company’s potential.

A public offering so large could see Snapchat firmly cement itself as the ‘best of the rest’ behind Facebook and Google. It’ll also be reaching for the heights of the two giants, though, as ad spend on the platform has significantly outperformed expectations. WPP, the world’s largest ad firm, spent a reported $90 million on Snapchat in 2016 after the firm forecast just a $30 million take. It’s nothing compared to Google’s $5 billion or Facebook’s $1.7 billion, but it’s a promising sign.

Neil Campling, head of global TMT research at Northern Trust Capital Markets, told CNBC: ‘Snapchat is seen as the number one form of social video. Yes, Facebook Live and Instagram videos are in the market but what that does is expand awareness and expand the addressable market… WPP went from zero on Google to $5 billion a year in 12 years, zero on Facebook to $1.7 billion in 6 years. Snapchat is likely on a faster growth path than either Google or Facebook. Their opportunity is enormous and just beginning.’

There’s a lot to suggest that Chowdhry is wrong. Often waved off as a fad by anyone over 25, Snapchat has been quietly changing the way younger people interact with social media and, indeed, technology itself. Bold moves like its Spectacles have paid off - it was one of the most coveted gadgets of the summer - and moves to make its Discover feature free from misleading or explicit images are refreshing. The 90 million ad spend from WPP is a demonstration of the industry’s faith in Snapchat’s methods.

The latter is particularly interesting. Snap has updated its guidelines for its publishers restricting them from posting pictures that ‘do not have news or editorial value,’ according to the New York Times. Given it’s young user base, the company’s strive to ‘keep Snapchat an informative, factual and safe environment for everyone’ is commendable. It has also suggested that some content could be age-restricted, measures that show that the company is both physically and strategically outside of the Silicon Valley bubble, and thinks about the impact of its content differently to its larger rivals.

Whether Snapchat’s unique perspective is proof of its staying power remains to be seen, and its next year is a big one. Many expect it to use a similar formula to that of Facebook to grow - introducing some sort of event organization tool, working in more context about when and where pictures and videos were taken, adding some form of e-commerce functionality - whilst retaining the youthful identity that makes it so popular. So, if you’re an investor now questioning the IPO or a business looking to access Snapchat’s young user base with ads, have faith in the Venice company, it may well live up to its ‘bloated’ valuation. 

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