Are Snapchat, Uber and Pinterest?s sky-high valuations too high?
Snapchat, Uber and Pinterest are being valued at eye-popping levels as the potential of mobile-first companies begins to be realized while still promising a lot more to come.
Snapchat is seeking up to a $19 billion value in financing, Uber is being valued at $40 billion and continues to expand its latest funding round, which is up to $2.8 billion, while Pinterest is seeking an $11 billion valuation in new funding. These numbers may seem surprising, given that these are relatively young companies that are still in growth mode, but the figures reflect the confidence that executives and investors have in the potential of mobile to unlock new opportunities.
?Make no mistake, the valuations of these companies is certainly high, but the history of tech start-ups in the mobile space is very short, and based on what we?ve seen over the past 5 years, we should start to be less surprised,? said Ken Wisnefski, CEO of WebiMax, Camden, NJ.
?Yes, mobile utilization still has a ton of space to grow and there is still plenty of content to be moved over and innovation that we?ve yet to encounter,? he said. ?While I see a disparity between companies wisely using funds and those wasting resources, as long as huge valuations are given to companies with no revenue and huge losses, more start-ups are likely to follow the user growth/0 revenue model.?
The value of mobile-first brands has grown quickly over the past few years.
In the spring of 2012, Facebook acquired Instagram for $1 billion, a figure that raised eyebrows at the time. But, by the fall of 2014, the social media giant was plunking down $22 billion for WhatsApp.
As consumers continue to spend more time on mobile devices, they are using them throughout their day for a variety of activities, from consuming content to staying in touch with friends and helping to simplify everyday tasks such as hailing a cab or paying for a cup of coffee.
It is this potential of mobile and the belief that not all of the ways mobile can be used have been discovered yet that is likely to continue to drive high valuations for mobile-first companies.
?The valuations for the current mobile and social startups are very high,? said Rajeev Chand, managing director and dead of research at Rutberg & Company, San Francisco. ?There is an abundance of capital in late stage capital markets, however, there are also fundamental drivers, led by mobile and smartphone growth, that are valid investment theses.?
Zero revenue start-ups
While the consumer?s love affair with the smartphone is undeniable, many of the companies enabling this relationship are still not making much money.
Per WebiMax?s Mr. Wisnefski, the business model for social media start-ups vertical is to first get seed or venture capital money and then focus exclusively on gaining users while having zero revenue generation. Over time, the goal is to turn users into actual revenue.
?The quick rise of mobile over just about every other information source, and the success by some in the social media space at converting users shows investors that it is a model worth looking at,? Mr. Wisnefski said.
?Unfortunately these zero revenue start-ups that get any kind of ?seed? capital tend to throw that money at problems as they surface rather than truly identifying them, and find that money runs out rather quickly,? he said.
The right appeal
Snapchat, Pinterest and Uber may be unique in that they have hit on formulas that have global appeal. For Snapchat and Pinterest there could also be significant potential from an advertising perspective
Not all mobile-first companies are going to replicate this kind of success.
?Yes, [these valuations] are high,? said Mary Jo Zandy, managing director at Berkery Noyes, New York. ?Still they are companies that have unlimited, global potential. And Snapchat and Pinterest are successful platforms, something very hard to achieve.?
The winners could be those who know how to use the capital they raise wisely.
Additionally, companies that can leverage mobile?s location data in a clever and meaningful way could attract the attention of investors.
?I feel start-ups running a very lean, basic prototype until they can gain steam can contribute more investment towards growth,? Mr. Wisnefski said.
?That being said, location technology is hitting a stride, and companies that can successfully bridge the gap between a person?s physical reality and the digital domain are exciting to watch,? he said.
Chantal Tode is senior editor on Mobile Marketer, New York