I originally published this post on November 18th, 2013 on a different blog. I decided to repurpose this today after hearing reports that Snapchat is in funding talks with Alibaba at a $10 billion valuation.
It seems like everyone is talking about Snapchat turning down a $3 billion offer from Facebook. To most of my friends, $3 billion seems like an absurd amount of money for an ephemeral photo messaging app, and they are shocked Snapchat reportedly turned down Mark Zuckerberg’s cash. Their logic is that Snapchat will never get an offer like that again, and they should have cashed out while they had the chance.
My friends think Snapchat’s founders were crazy to turn down the $3 billion, but I disagree.
This may sound crazy to many of you who read this, so I want to use this blog post to explain why I believe they (wisely) rejected the buyout offer. Don’t get me wrong, I am not sure if I would have the guts to turn down that kind of money, but observing from the sidelines, I believe Snapchat’s shareholders will ultimately end up making more money by holding out.
People really like list posts so here’s four reasons Snapchat wasn’t crazy to turn down $3 billion.
1. Snapchat is riding a photo-sharing tidal wave to the top.
Photo sharing is exploding, and we’re only in the early stages of this growth. Word to Mary Meeker. As of May 2013, 500 million photos are shared every single day, and that number is doubling year-over-year. That means that by May of 2014, one billion photos will be shared daily. Guess who’s the biggest driver of that growth? Snapchat.
350 million photos are shared daily on Snapchat according to the numbers released in September 2013. You know what’s even crazier? In June 2013, the number was 200 million. That means in 3 months alone, the number of photos shared daily on Snapchat increased 75%.
2. Snapchat’s user-base is about to explode thanks to all the press.
Snapchat is estimated to have anywhere between 8 and 26 million users. Personally, I think it’s leaning more towards 20 million. This growth has been primarily driven by teen users. Snapchat has hit the point now where more and more adults are going to begin creating accounts because major news outlets, like CNN, are introducing their viewers to the app because of all the hype. In the world of valuations, users equal money and Snapchat is going to continue to acquire millions of new users, with or without Facebook’s support.
3. Owning Snapchat means having an incredible amount of power and influence.
One thing to keep in mind about non-monetary motives is the fact that by owning Snapchat, founders Evan Spiegel and Bobby Murphy have power. People often underestimate the power and influence factor. It’s one thing to be the guys who started and run a multi-billion dollar company that millions of people use every single day; it’s another to be the guys who sold their company to Facebook for $3 billion. Both are great, but ownership is power and influence. When you sell to Facebook, you lose that.
4. Snapchat is positioned to generate major advertising revenue.
When Snapchat gets serious about monetizing, they are going to generate some serious moolah. What are advertisers looking for when spending money via social media platforms like Facebook and Instagram? First and foremost, engagement. And Snapchat has arguably the most engaged users of any social media platform. Also worth considering is how valuable their target market is; that’s a big reason why Facebook was willing to put up $3 billion.
I’ll leave it at that for now. Let me know what you think in the comments below, or send me a tweet. If you’re interested in learning more about Snapchat and why it’s worth so much, I recommend reading the following: