Snapchat’s IPO proves Instagram could be worth over $100 Billion
Will Snapchat survive?
Snapchat’s parent company Snap Inc is going public, and its stock will start trading at $17 per share at a valuation of $24 billion dollars.
This is one of the biggest recent tech IPOs, but fundraising shouldn’t be a direct measure of business success. Will Snapchat make money? Will it actually survive?
Instagram turned Snapchat into a feature
Snapchat was one of the fastest growing social network in the past few years. It was rumoured that Mark Zuckerberg even proposed to buy it for $3 billion dollars. But, Evan Spiegel turned down the offer. And so, Zuck just took the idea and made it better — Instagram Stories.
Since the launch of Instagram Stories, it has gained 100 million daily active users within a few weeks and reached 150 million daily active users in under 5 months. This number took Snapchat more than 4 years to reach.
Instagram Stories is a testimony of Steve Job’s famous quote “Good artists copy; great artists steal.” Instagram openly copied Snapchat’s best feature and made Stories an overnight success thanks to its existing network effect.
Instagram didn’t just steal, but it made Stories more discoverable. Since everything on Snapchat is ephemeral, the lack of permanent profiles makes it hard to discover new personalities and brands.
On Instagram, you have choices. You can permanently post amazing photos on your feed. Or, you can post Stories that will disappear after 24 hours. Or, you can snap an ephemeral photo to friends. Or, you can message friends in a dialogue.
Everything you can do on Snapchat, you can now do the same and more on Instagram. Snapchat is now a feature on Instagram.
Instagram is only the beginning
Facebook’s philosophy is to “move fast and break things”. They run businesses like running experiments. Every tiny feature of Facebook’s products is scientifically tested using rigorous metrics. For example, will adjusting the “Like” button to be more blue increases engagement rate? Facebook will test it.
Instagram was a testing ground. Instagram has about 1/3 of all 1.8 billion monthly active users across Facebook’s product offerings. If Stories didn’t fly on Instagram, they could simply roll it back.
Based on the actual success of Stories, Facebook is rolling out Snapchat-like features to its other products like WhatsApp and Messenger. The combined efforts in Photos and Videos across Facebook’s offerings will significantly slow down Snapchat’s growth as Snapchat loses its uniqueness.
Snapchat still loses money
Snapchat still loses money today. In Snap’s S-1 filing, it even states that the company may never achieve or maintain profitability.
“We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.” — Snap’s S-1 filing
Similarly, Twitter also hasn’t achieved profitability yet. Facebook, on the other hand, was profitable before IPO and is now earning $10 billion dollars in annual net income.
Since advertisers can buy ads across Facebook’s products via its Ads network, every feature on every Facebook product can become a profitable business through its existing advertising sales channel.
Could Instagram be worth $100 billion?
In 2012, Facebook acquired Instagram for $1 billion dollars. At that time, this acquisition seemed crazy. Instagram only had 30 million users. Today, there are over 600 million Instagrammers, twice as many as Snapchat users. If the valuation is based on the number of users, Instagram should be worth $50 billion right now.
100 million users joined Instagram in the past 6 months (16% growth)! Instagram is well on its trajectory to join the 1-billion-user club while being a successful and profitable mobile ads network.
If we assume that the market is being rational about Snap’s valuation (which is unlikely), we can say that Instagram will soon be worth $100 billion when it reaches 1 billion users with profitability.
Say cheese, 📸
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