Business unusual: Snapchat

In this week’s business unusual, tries to understand why last week investors valued Snapchat as high as they did when it’s never earned a profit…

Image: Dondy Razon

It’s less that Snapchat is a bizarre business model, but rather it is how it is conducting its business that is causing some brows to be raised. Its engagement is huge. With 158 million daily users, the number of pictures sent between users is in the region of 2.5 billion. Though social media giant Facebook can claim significantly greater users in the ten figure region, the average user of Snapchat is much younger and spends about half an hour every day on the service.

Having gone public last Thursday at $17 per share, its closing price of $24.48 ex-
ceeded the initial public offering by 44 per cent. Its overall value is $22 billion. Yet this comes despite Snapchat never having turned a profit.

Developed by Snap Inc. it is unclear why investors are placing so much faith in the cultural phenomenon.

Perhaps the optimism surrounds the way that Snapchat has helped catalyse a complete transformation of the way millennials communicate with one another. It decreases formality and stimulates frivolity.

All revolves around the default temporary setting of Snapchat. Media sent gets evaporated after ten seconds, though it is possible to save anything sent. This means both that sensitive material isn’t sent because it can be caught, but also that, because the default is to delete anything sent, most media tend to be of low value, in high freqency and tends not to be particularly meaningful.

Indeed, a 2014 report by the University of Washington and Seattle Pacific University found that 59.8 per cent of users primarily used Snapchat for sending comedic content, while only 14.2 per cent said they had sent sexually explicit material at any point.

Because it is ultimately possible to capture the messages, 74.8 per cent said they would never send anything classified as sexting and 93.7 per cent would never send anything cruel or offensive.