Having more than 100 million daily active users was the easy part for Snapchat, now it needs to find out how to make money off them. The company has tried a number of approaches, most of which involve various forms of advertising, and some of them show promise, but Snapchat’s ad revenue is still pretty lackluster, and investors are worried. Concerns that Snapchat’s $16 billion valuation have been circulating for a while, but the company’s inability to make an impressive amount of money from ads is making things much worse.
Snapchat, maker of a free mobile app that lets users send videos and messages that disappear in seconds, is struggling to gain traction with advertisers, fuelling investor concern that its $16 billion valuation isn’t justified by a business that hasn’t yet shown it has a steady source of income. Even in a world where upwards of 140 private companies are reckoned to be worth $1 billion or more, Snapchat’s outsized value stands out. Fidelity Investments’ decision to slash the estimated value of its Snapchat stake by 25 percent in the third quarter exacerbated concern about the company’s ability to meet advertisers’ expectations. For Snapchat advertisers, the question is whether prices that can reach more than $500,000 for some ads is worth it when the company lags competitors in targeting specific consumers and measuring how ads perform. “If Snapchat doesn’t get that figured out, they’re in trouble,” said Nick Godfrey, chief operating officer at RAIN, a digital strategy agency.
