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Snapchat Inc. (not currently publicly traded) is a mobile application for instant photo and video-sharing. The app was developed by Evan Spiegel and Jonathan May, both of whom were Stanford University students. Snap has been lauded for its success ever since its initial debut in September 2011. It is available on iOS, and Android systems. Users dictate for how long their recipients can view the photo or video snapshots (ranging from 1 to 10 seconds). Snapchats once viewed, are deleted from the recipient’s device, and from Snapchat’s servers. Many have accused the app of being a waste of time. But isn’t it a social media sharing tool, maybe not on the scale of Twitter (TWTR - Analyst Report), LinkedIn (LNKD - Analyst Report), or Facebook (FB - Analyst Report). But it has certainly succeeded by developing a large user base, granted, most of its users are teenagers and young adults, but why are some of us not giving any credit to the once small startup company? Three years after its launch, the SnapChat's valuation is close to $10 billion now, with many seeking a slice of the rapidly growing company. What’s next for Snapchat? Has it already fallen a victim to overvaluation? Are we going to see an initial public offering or is it going to remain privately owned? We will examine the firm’s prospects and see how things are shaping up for this valuable startup.

Snapchat’s Prospects

Kleiner Perkins Caufield & Byers have agreed to invest in the fleeting message app. This investment pushes SnapChats valuation close to $10 billion. SnapChat was valued at $2 billion around this time of last year. Snapchat has had issues racing capital partly due to the fact that Snapchat does have any any revenue. One of the ways that its owners have thought of producing revenue is advertising for brands and companies. This seems a lot similar to how Facebook (FB - Analyst Report) and Twitter (TWTR - Analyst Report) earn most of their revenue.

DST Global, Yuri Milner’s investment firm invested in Snapchat this year with around $7 billion. Snapchat does look like a good investment despite how it lacks a clear business model. Investors will seek to cash in on Snapchat from the millions of teens and college students addicted to the swift messaging software. Advertisers see SnapChat as a practical way to find it hard to appeal and cater to the highly coveted demographic group.

Snapchat will also be susceptible to investor and activist pressures mounting on the new cash pile the company is going to be sitting on. This new capital investment will most likely be used by Snapchat in its endeavor into the advertising space. The tech startup has already been in talks with media and marketing brands regarding its newest wishes to debut a content service, Snapchat Discovery, which would enable users to read daily publications, video clips, and ads by holding down a finger on the screen.

More than a 100 million users make use of Snapchat every month, and it is estimated that two thirds of those users log on to the service daily. To compare Snapchat to Whatsapp would be another story. Whatsapp is a strictly text messaging app acquired by FB for about $19 billion earlier this year. Whatsapp announced this week that it had 600 million monthly active users (MAU). Snapchat declined to sell itself to FB for $3 billion. The highly anticipated IPO monster Alibaba Group Holding Ltd. passed on an investment opportunity, indicating that Snapchat may still have some things to tweak and work on, in order to become more attractive to larger investments in the ever-growing social media space.

Bottom Line

Snapchat is definitely gaining momentum, but only time will tell whether its owners will file for an initial public offering in the US markets. However, they need to get the success formula right. Since the founders declined to sell their company to Facebook, it may be a hint to investors that they are seeking to expand and grow. Investors saw Facebook use a similar tatic when it refused to sell itself to software giant Microsoft (MSFT - Analyst Report). Other than that, investors would be wise to see which social media stock is best to invest in, bearing in mind how FB and LNKD are currently a Zacks Rank #2 (Buy), while TWTR is a Zacks Rank #3 (Hold).

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