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Facebook Then Twitter... Is Snapchat Next?

Written By Brian Hicks

Posted February 20, 2015

Snapchat, known as the mobile app for sending short-lived photos and videos, is currently pursuing a round of funding that could raise its valuation to $19 billion.

At that level, Snapchat will become one of the highest-valued private companies in Silicon Valley. It would only be outranked by mobile car-booking giant Uber and Chinese smartphone maker Xiaomi, which are worth $40 and $45 billion, respectively. All three make up the top three start-ups backed by venture capital firms.

Snapchat lets users take and send photos and videos that disappear seconds after they’ve been seen. Users also have the option to add media to their public “story.”

The company stated that its users, many of whom are in their teens, send more than 700 million disappearing “snaps” and view over 500 million stories daily.

Calls to monetize the company resulted in the app debuting ads that disappear shortly after they’re viewed, much like the app’s primary content.

Despite numerous comparisons to Facebook (NASDAQ: FB) and Twitter (NYSE: TWTR), Snapchat has promised not to use any demographic information about its users to tailor ads to individuals, unlike its social media competition.

Some investors would balk at the prospect of investing in a social media company that doesn’t serve ads based on users’ interests and activities, but so far, that hasn’t slowed down Snapchat’s meteoric rise in value.

New Tricks

Last month, Snapchat took its first large step toward generating meaningful revenue.

It launched Discover, a section intended to turn its app into an entertainment destination. Discover features original articles, video, and photos produced specifically for the app from 11 different channels including CNN, ESPN, Comedy Central, National Geographic, Vice, and Yahoo News.

Vice released a report on Chinese bitcoin mining on Discover first, where it was viewable for 24 hours before disappearing and appearing elsewhere.

The Los Angeles-based company has also announced plans to produce its own original media content, including its own superhero series in which YouTube and Vine “celebrities” are featured in short clips.

Following its creation in 2011 by three Stanford University students, Snapchat’s valuation has skyrocketed. Founder and CEO Evan Spiegel rejected a $3 billion acquisition offer from Facebook in 2013 and then went on to raise funds for a $10 billion valuation this time last year.

So how did Snapchat go from $3 to $19 billion? As of January 24th, Snapchat was used by 29% of Apple (NASDAQ: AAPL) iPhone users in the United States. Its popularity tops that of many similar apps including Twitter’s Vine.

Snapchat is also gaining ground on Facebook’s photo-sharing application, Instagram, which has 300 million active monthly users.

Investors are constantly on the lookout for the next Facebook or Twitter, but Snapchat’s current approach isn’t going to make it the next anything. Its noble decision not to exploit its users’ demographic information is going to do great things for Snapchat’s reputation but not necessarily its pocketbook.

Since its inception, the company has spent little time introducing products that could boost its bottom line and more time focused on attracting new users. But that’s in the past now.

We’ll soon see if Snapchat can perform well enough to earn its $19 billion price tag.