Snapchat has a bright (and long) future

  @CNNTech October 25, 2013: 8:35 AM ET
snapchat valuation

Snapchat's new features and growing valuation are raising questions about a potential IPO.

NEW YORK (CNNMoney)

Snapchat lets users send photos that last only for moments, but investment analysts believe the social media company's future will be long-lasting.

The widely popular erasable photo messaging app is finding that it's on a path similar to major social networks, including Instagram and YouTube, both of which sold for billions of dollars. Snapchat now has more funding and a higher valuation than Instagram and YouTube when they were at Snapchat's stage in their startup lifespan.

If it follows Instagram and YouTube's path, the only next step for Snapchat would be to sell the company to the highest bidder.

Snapchat certainly has a huge following, maintaining an audience of more than 100 million users along with more than 350 million snaps sent per day.

At the moment, the app isn't making money. CEO Evan Spiegel has hinted at possibly gaining revenue through in-app purchases.

But that's not necessarily a deal-breaker. Instagram and YouTube didn't have much by the way of revenue before being sold. Instagram has just recently announced they will work on inserting ads in photo feeds. Instagram and YouTube didn't start selling ads until after they were sold to Facebook (FB, Fortune 500) and Google (GOOG, Fortune 500), respectively.

Snapchat currently has raised around $60 million in funding by five different groups over the summer, valuing the company at an estimated $800 million.

Related story: Snapchat's 'disappearing' videos don't actually vanish

In comparison, Instagram had raised $50 million in funding with a $500 million valuation before being sold to Facebook. YouTube received single-digit millions in funding in 2006.

"Snapchat's growth as a mobile service is probably the most explosive we have ever seen at Benchmark," general partner of Benchmark Mitch Lasky says of their Series A investment in Snapchat. "Snapchat's reach and level of engagement with users is significantly higher than we've seen with other services at similar stages."

The early-stage venture capital firm Benchmark also invested in Instagram before it was sold to Facebook.

Snapchat is part of a brand new social media trend that is gaining strength. In an increasingly public world, the erasable media trend has become a more attractive option for many social media users who want to keep certain content just between friends and only for a short time.

One of Snapchat's main investors, Institutional Venture Partners, said Snapchat is "setting the world on fire" because of user's interest in momentary sharing.

"We believe ephemerality will become a more standard feature in communication apps and even social networks," said Greg Woock, CEO of Snapchat competitor Pinger. "There are a growing number of apps that are built around privacy and security."

But the here-and-gone nature of Snapchat could make revenue hard to come by.

One potential solution is competing in the more permanent photo app space. Snapchat has made some "snaps" last even longer with its 24 hour "Snapchat Stories" feature, which could one day include advertising.

One thing is for sure: With its growing user base and trend-setting mode of photo sharing, Snapchat isn't going to disappear anytime soon. To top of page



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