Why Snapchat is not worth $10.7 billion

IT MAY be the du jour among young people right now but is Snapchat, the disappearing messenger app, really worth that much money?

Snapchat

HAS the smart money in Silicon Valley lost its mind?

Last week, the highly regarded venture-capital firm Kleiner Perkins invested an additional $21.44 million into Snapchat, which raised its valuation to a lofty $10.71 billion.

The 3-year-old start-up is now one of the most highly valued members of Silicon Valley’s megabucks club.

But get this: The disappearing messaging company hasn’t even produced revenue yet.

Which, as novel as the company is, makes you wonder if the Menlo Park guys have short-circuited their investment process.

Success has a funny way of going to your head, but one of these days a large deal could just blow a transistor, leaving the Silicon Valley investors looking like irresponsible egotists.

OK, let’s start with the premise that figuring out what hip new thing will instantly attract the wandering minds of millions of teens-to-twenty-somethings is a difficult feat in itself.

And giving credit where credit is due, Snapchat has indeed already accomplished that.

But since kids are notoriously fickle, who’s to say the next big thing has to be a social-media app?

Snapchat is popular among young people but has no current revenue model.

Remember, these guys weren’t even around when Facebook purchased Instagram.

That said, a captured audience of millions in the social-media space is often worth billions if it can be converted into big advertising dollars, or perhaps a paid usage service.

Other start-up companies, including Uber, Airbnb and Dropbox, have all also raised money at very lofty valuations: Uber at $18 billion, Airbnb and Dropbox at $10 billion, like Snapchat.

But the difference is that these other mega-valued start-ups already have real revenues and, in some cases, meaningful profits.

Kleiner Perkins has made riches beyond probably even its own wildest dreams in this digitally inflating bubble.

But at a $10 billion valuation for this albeit nifty neophyte of a company with no revenues to speak of, it does indeed have to make one wonder: Has Silicon Valley gotten stupid from all of its success?

This article originally appeared on The New York Post and was republished here with permission.

Originally published as Why Snapchat is not worth $10.7 billion