In 2013, teenage attention-pit Snapchat turned down a $3 billion buyoutoffer from Facebook, which is only not an insane and arrogantdecision if you’re going to reap so much profit that you’re eventuallyworth more than that. Leaked internal documents show Snapchat is very, veryfar from profitable.

Shortly after news broke that Snapchat, an app for sending and viewingpictures, considered itself worth more than $3 billion, disgraced WallStreet jester Henry Blodget did what he does best: wrote a dreamilyoptimistic post titled “EXCLUSIVE: How Snapchat Plans To Make Money.”Blodget offered some helpful, hypothetical napkin math (emphasis his):

So, for Snapchat’s $3 billion valuation to be reasonable, you haveto assume that Snapchat will some day generate, say, $500 million ofrevenue and $200 million of profit (there’s a time-value of moneyand a discount rate that need to be factored into the valuation. Forsimplicity’s sake, we’ll just use numbers than are bigger than the actualrevenue and profit numbers we need.)

Blodget’s big exclusive was that Snapchat would probably use advertising tomake money, since teens are averse to paying for literally anything and howthe hell else is Snapchat going to make money? That was two years ago.Today, Bloomberg Business has another exclusive non-exclusive: “EvanSpiegel Reveals Plan to Turn Snapchat Into a Real Business.” The answeris...

After starting to run select video ads earlier this year, Snapchat is aboutto begin soliciting other big advertisers with some new numbers that assertits audience is bigger, younger, and more obsessive than anything ontelevision.

Advertising. But Snapchat has been advertising since last year—and asinternal financial documents obtained by Gawker show, the company stillended 2014 with a lot of red ink. Between January and November of 2014, thecompany lost over $128 million, with just a little over $3 million inrevenue. Mike Dempsey of venture capital analytics firm CB Insightsdescribes this red ink as “big for 11 months, but not outrageous,” addingthat “if Snapchat is at a similar point right now in its business lifecycleas 2012-2013 Twitter, the new funding probably gives them a multi-yearrunway.”

Luckily, the company has well over $300 million in cash on hand:

Now, this period would only include about a month and a half of ad revenue,as the program had only started in mid-October. Even if we round generouslyin Snapchat’s favor and call it $3 million per month in ad income, that’sonly $36 million per year.

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This data is notably missing ad revenue from Snapchat’s “Discover” feature,where media properties like Vice and Cosmopolitan offer micro-broadcasts,because it wasn’t rolled out until earlier this year. Given that Discovermade waves (and eye-rolls) for its colossal rates, this is an appreciablejunk of change we’re not seeing here. But according to the Bloombergwriteup, Discover hasn’t proven to be the cash cow Snapchat probablyexpected:

Snapchat’s media partners say traffic to the new Discover page in theSnapchat app started strong when it was introduced in January and fell offdramatically after the initial surge of interest.

[...]

...Snapchat’s ad rates have declined rapidly. This month the companyannounced it would start to charge $20 per 1,000 views, a fraction of itsearlier price, agencies say.

If Discover has proven to be an overhyped bust, and its ad take hasdeflated along with teen interest, then it’s hard to imagine Snapchat’sbottom line is looking tremendously better. And if the company can’tjustify a $3 billion valuation, how in the hell did it convince investorsit was worth $15 billion?

Snapchat declined to comment.


Contact the author at biddle@gawker.com.
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