The photo and video sharing application Snapchat is fundraising at the moment, and heading for a $12bn market valuation. To put that number in context you could buy Real Madrid ($3.44bn), Barcelona ($3.2bn), Manchester United ($2.8bn), and the New York Yankees ($2.5bn) for that price, and still have change.
To put it in a media context, it is more than five times the market value of The New York Times Company.
$12bn is also four times what Facebook was offering to buy the company last year.
Saying No to Facebook
Every time the future of social media is discussed, three apps are mentioned: WhatsApp, Instagram and Snapchat.
Facebook has already acquired the first two. The $1bn acquisition of Instagram seemed absurd at the time, but now it is starting to look like a bargain. If it bought Snapchat for $4bn last year that would have appeared steep, but if the value grows to four times that number, that too would have been a bargain.
Buying Instagram and WhatsApp has beefed-up Facebook’s mobile offering, and will help the company weather the market's on-going move towards less laptops and desktops, and more smart devices.
Changing market
Traditional social media giants like Twitter are facing questions over their potential future growth, while companies like Snapchat continue to grow rapidly.
Snapchat is one of a number of applications that have outsiders scratching their heads, it makes little or no money, but its value keeps rising.
Low income/high value social media companies are one of the major trends in technology right now. These apps don't make a lot of money, but they do have a lot of young users and high user-engagement. In Snapchat's case, its users check the app 14 times every day.
Real numbers
Half of Snapchat's users are between the age of 13 and 17, a notoriously hard demographic for advertisers to reach, and Snapchat is currently moving into more advertising.
Marketing is a difficult game on Snapchat, a post on the company’s official blog said: "We want to see if we can deliver an experience that’s fun and informative, the way ads used to be, before they got creepy and targeted." The creepy and targeted reference can be interpreted as a dig at other companies who use users' personal information to sell targeted advertising.
The kicker is that viewing adverts on Snapchat is totally optional. Advertisers cannot force users to engage with their advertising, they have to actively choose to watch it.
As the value continues to rise, there is talk of the company going public. If they are planning to – they will have to start producing some real revenue.
Intangible value
The valuations of Snapchat, and other companies like Snapchat, are based on the market sentiment, not earnings, so it is very hard to work out now much they are actually worth.
With other companies you can look at income, expenses, debts and future prospects to try and forecast how the company will perform. With something like Snapchat there is less solid information, making the value more of a guessing game.
The market is so unpredictable that investors are caught in a difficult place, they face the risk of getting suckered into a bubble, or missing out on 'the next big thing.'
