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Oh Snap! Wall Street Value

August 27, 2014 | About:

Has Wall Street completely gone off the deep end? Have social media valuations reached the ridiculous levels of the Dot Com Bubble? The answer to both must be yes. How can a company be valued at $10 billion without any rvenue, business plan or actionable model? It isn't as if Snapchat hit a rough patch and is trying to increase its net income next quarter. The company hasn't sold anything, hasn't made any money and quite frankly isn't a real business. How would it be monetized? Through random spam ads sent to its users? That would kill the "company." Regardless of whether the company is set to do its IPO and enter the market or may be sold in 5 years to another VC firm, the fact that companies are being valued pre-revenue at such extraordinary numbers and projects is maddening.

History will repeat itself, regardless of whether we learn from our mistakes, because human nature is the same. It is saddening that analysts are saying that $10 billion is a fair value for a "business" with no revenue simply because it's what someone is willing to pay for it in the market. We shouldn't always be price takers, or foolish enough to value a company at number. To compare the company to Twitter (TWTR) and value it accordingly is even more absurd! Taking one extremely overvalued company and comparing it to another "business" in order to find its value isn't prudent financial practice. A business is the present value of its future cash flows, and I may lack vision to see how Snapchat will have future cash flow to justify its current $10 billion valuation.

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