Techonomy's Kirkpatrick Says Snap Pricing Is 'Crazy'

TL;DR

Snap's valuation is high despite uncertain expansion potential.

Transcript

what do they have to do to justify that kind of valuation well more or less they have to become the next Facebook and I frankly am skeptical of that but I I you the thing about snap that I really have to say is it is a great company very different than anything that's come before it absolutely meets the needs that anticipated the needs of Millennia... Read More

Key Insights

• Snap needs to emulate Facebook's success to justify its current valuation, which seems unlikely given its demographic focus.
• Snap is highly popular among Millennials, offering unique engagement, but sustaining this with advertising remains unproven.
• Snap's potential is compared to LinkedIn's niche success rather than Twitter's broader struggle, focusing on a specific demographic.
• Expansion beyond Millennials is crucial for Snap to achieve broader market success similar to Facebook's multi-platform strategy.
• Snap's valuation at 84 times revenue is questioned, despite its potential as a leading mobile video market player.
• Video distribution could be a major revenue driver for Snap, but expectations for global growth similar to Facebook are unrealistic.
• The tech IPO market is starved for consumer-focused companies with high growth potential, increasing Snap's appeal despite risks.
• Future tech IPOs like Spotify may benefit from Snap's high valuation, indicating a trend toward strong market interest in similar companies.

Questions & Answers

Q: What is required for Snap to justify its valuation?

Snap would need to achieve growth similar to Facebook, expanding beyond its current Millennial-focused demographic. This involves either reaching older demographics or innovating in new markets. However, given its current focus and unique engagement with Millennials, achieving such broad-based growth seems unlikely.

Q: How does Snap's engagement with Millennials impact its business model?

Snap's high engagement with Millennials offers significant potential for advertising revenue, as this demographic is highly sought after by advertisers. However, the challenge lies in maintaining this engagement while successfully integrating ads without disrupting user experience, which is crucial for sustainable revenue growth.

Q: Why is Snap compared to LinkedIn rather than Twitter?

Snap is compared to LinkedIn because, like LinkedIn, it serves a specific demographic effectively, offering a solid business model within that niche. Unlike Twitter, which struggles with broader market appeal, Snap's strength lies in its focused engagement with Millennials, similar to LinkedIn's success with business professionals.

Q: What are the challenges for Snap in achieving Facebook-like expansion?

For Snap to achieve Facebook-like expansion, it must either broaden its demographic reach beyond Millennials or innovate with new platforms or services. However, its current valuation suggests expectations for such expansion, which may not be realistic given its existing market focus and capabilities.

Q: How does Snap's valuation compare to its revenue potential?

Snap's valuation at 84 times revenue is seen as excessive, despite its potential as a major player in the mobile video market. While it could become a leading video distributor, the growth expectations embedded in its valuation seem disproportionate to its current and foreseeable revenue capabilities.

Q: What role could video distribution play in Snap's future success?

Video distribution could be a significant revenue driver for Snap, capitalizing on its high engagement with Millennials. However, achieving global growth similar to Facebook is unlikely, and while video can enhance its market position, the expectations for its impact may be overly optimistic.

Q: Why is the tech IPO market interested in companies like Snap?

The tech IPO market is keen on consumer-focused companies with high growth potential, like Snap, due to a scarcity of such opportunities. Snap's appeal is heightened by its unique market position and engagement, despite risks associated with its high valuation and uncertain expansion prospects.

Q: How might Snap's IPO impact future tech IPOs like Spotify?

Snap's high valuation sets a precedent for future tech IPOs, potentially benefiting companies like Spotify. The market's strong interest in high-growth consumer tech companies suggests that similar IPOs could achieve favorable valuations, reflecting a broader trend in investor appetite for such opportunities.

Summary & Key Takeaways

• Snap's current valuation suggests it needs Facebook-like growth, yet its focus on Millennials limits its broader market appeal. The company's unique engagement with this demographic offers potential, but sustaining advertising revenue remains uncertain, challenging its long-term growth prospects.

• Snap's comparison to LinkedIn highlights its niche market success, suggesting limited expansion capabilities. To achieve Facebook-like growth, Snap must broaden its demographic reach or innovate in new ways, yet its current valuation seems disproportionate to its actual market potential.

• The tech IPO market's hunger for high-growth consumer companies boosts Snap's appeal despite its high valuation. Video distribution may drive future success, but expectations for global growth akin to Facebook are unfounded. Upcoming IPOs like Spotify could follow Snap's valuation trend.