Could Snapchat Ever Be Worth Something?

Profits might be around the corner for the currently revenue-less company.

Jan 14, 2014 at 11:00PM

Tech is already having a heck of a 2014. Besides the excitement of the most recent Consumer Electronic Showcase, the buzz is still deafening over the peculiar "disappearing photo-sending service" known as Snapchat.

After turning down buyout offers from both Facebook (NASDAQ:FB) and Google, the company has investors flocking to pour money into its coffers, which mean it's now valued at a staggering $2 billion. All this, and for a company that currently generates nothing in the way of revenue. Is this company really that valuable, or is this just as good as it's going to get for a business that's soon to disappear?

Really worth more than Instagram?
If a huge buyout offer for a zero-revenue photo-sharing app sounds familiar, it's because Facebook pulled the same trick not long ago. Zuckerberg and company made their Instagram purchase back in April 2012, initially for $1 billion, but it was later revised to around $750 million.

At the time of the transaction, Instagram had nothing to its name in the way of sales. Since then, the business has gradually begun implementing advertising into its stream of filtered photos, all while its user base has expanded to 150 million monthly active users. While the current state of its revenue has yet to be announced, more eyes and ads could add up to some solid dollar signs for Instagram in the near future.

But what about Snapchat? In Zuckerberg's eyes, the company is worth more than three times what Facebook was initially willing to pay for Instagram (although that offer was declined), even though its product essentially disappears in seconds. In this case, Facebook might not have just been willing to pay for a photo tool; it was trying to buy back the demographic that has been slipping through its fingers as of late: teenagers. During Facebook's last quarterly conference call, the company admitted to seeing a drop in daily users, particularly within its younger teenage base. Those users are migrating in droves to Snapchat, finding the ephemeral quality of its disappearing photos much more appealing than the seemingly eternal stickiness of Facebook posts.

Emily White: the secret weapon?
Taking another page out of the Instagram handbook, in December, Snapchat snatched up Emily White, former Facebook executive, as its new Chief Operating Officer. Besides being another slap to Facebook, which appointed White as Instagram's Director of Business Operations in April 2013, the move also suggests that Snapchat is serious about growing its profitability -- on its own terms. White brought advertisers and monetization to Instagram, and now she's expected to work her magic again for the disappearing photo service.

During her tenure with Instagram, White also worked with co-founder Kevin Systrom to make user operations more efficient, and initiate partnerships for advertisers, investors, and the like. That kind of experience can also be a valuable asset for Snapchat as it attempts to turn its 400 million daily disappearing messages into evergreen earnings.

How it could be monetized
It's no secret that where there are ads, the money is soon to follow. So far, Snapchat has had difficulty winning over marketers for the same reason its users love it: The short-term quality of its product makes it difficult to squeeze in any kind of meaningful commercial. However, Snapchat is already taking some creative steps to become more attractive to advertisers.

For starters, in Oct. 2013, Snapchat released a new "Story" feature that allows users to post photos that disappear after 24 hours, as opposed to the original seconds-long lifespan. Additionally, any photos selected for a user's "story" are viewable by anyone, per the user's preferences. That kind of accessibility is much more appealing from a marketing standpoint, and more companies could soon start to take notice.

Dollars don't vanish?
Only time will tell how permanent Snapchat really is, but the company has smartly set the stage to start squeezing out some sales in the meantime. With experienced executives on its roster, as well as the beginnings of a possible money-making structure for marketers, the future for photos might be brief with this company, but the fiscal potential (at least in the short term) could be significant.

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Fool contributor Caroline Bennett has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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