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Let’s get one thing out of the way. I think that the current $28 billion valuation of Snap (the parent company of Snapchat) is insane.
Last year the company lost half a billion dollars.
In 2016, Snap took in about $400 million in revenues - putting the valuation at 70 times sales.
To put this into perspective, the price-to-sales ratio at Google (Alphabet) is 6.43. Amazon’s is 3.
There is almost no scenario that I can come up with where Snap grows fast enough, and lowers its expenses enough, to earn enough profit to justify this valuation.
Maybe you disagree?
If you do - and if you think that the valuation of Snap makes any sense beyond the greater fool theory of investing - then please share your thoughts.
My theory is that it doesn’t matter all that much in the greater scheme of things if some people make or lose lots of money on Snap. That is their business.
What does matter is that higher ed people in general - and edtech people in particular - get into this discussion.
We might not have any expertise in investing, but we do know technology companies. We partner, collaborate, and depend on companies in the technology ecosystem to run core campus services. We need to evaluate the financial health of our edtech partners along with the quality of their technologies.
Whenever we look at an edtech company that we might potentially do business with, we ask a few questions. We ask: Does their business model make sense? Do we feel confident that they are creating shared value? Will the company be around and healthy in a few years?
How would you answer these questions for Snap?
I worry that when companies like Snap get valuations this high that it throws off the entire technology - including edtech - marketplace. I worry that investors value eyeballs over value, a cool factor above a worthwhile contribution.
Snapchat might be fun, but I can’t see that the app solves any real problem or adds much real value to people’s lives.
Yes, I may have my problems with the edtech industry - an industry that I think has not put the educator at the center of its business models - and has largely over-promised results while under-delivering in terms of improving postsecondary productivity.
But at least I understand the business models behind the edtech companies that I work with and know. I understand their costs, their revenues, and their valuations.
For Snap, I don’t understand the business fundamentals of this company whatsoever.
Do you want to talk about Snap?
