Despite the fact that whenever I read things like this it depresses and befuddles me, the truth is a company (or really anything) is only worth what the buyer is willing to pay for it.
Is Snapchat really worth $3b? Apparently they are, because someone was willing to buy them for that much. It doesn't matter if they make 0 revenue, or if they 0 users, or the worst possible financial metrics. At the end of the day, if someone is willing to buy them, then the founders and investors will get their return on investment. The VCs won't care if they are hemorrhaging money as long as at the end of the day, there is some sort of exit that is a multiple of their initial investment.
I think the revelation I've discovered since diving into entrepreneurship is that worth is not simply as black and white as how much money you're bringing in versus how much you are spending. Part of a business model appears to now be acquisition - it's like the analogy of do you want to offer a product for $100,000 to 10 users and earn $1mm, or do you want to sell a product for $10 to 100,000 users? In this case, it's selling 1 product (your business and it's userbase) to a customer (the parent company) for a large sum.
When you look at it that way, businesses are simply commodities just like the products that are offered within them. The business itself is the product. In that sense, the customer-facing product is simply just a mechanism to the greater product, which is the sale of the business.
I hope I've articulated myself clearly enough, but that seems to be the rationale that makes the most sense to me when I see seemingly "fruitless" businesses valued at exorbitant amounts.
This is NOT a comment on Facebook or Snapchat or any other company I'm involved in --
You're sort of right. The other part that fills in the logic is "what is the value of business X to acquirer Y" -- seen through the eyes of acquirer Y -- business X when it becomes part of Y.
When Y buys X, X's opinion or the market's opinion of what X is worth is only one input. The more important input is usually what Y thinks X will be worth as part of Y. That is hard to understand from outside of Y. I am aware of deals where the purchase price was way more than X thought they were worth, but Y still got a bargain -- and every other permutation you can imagine.
For this reason it's very hard to have an objective view of what X is worth in the abstract -- the takeout price in an acquisition depends on who is buying it at least as much as any other factor.
Is Snapchat really worth $3b? Apparently they are, because someone was willing to buy them for that much. It doesn't matter if they make 0 revenue, or if they 0 users, or the worst possible financial metrics. At the end of the day, if someone is willing to buy them, then the founders and investors will get their return on investment. The VCs won't care if they are hemorrhaging money as long as at the end of the day, there is some sort of exit that is a multiple of their initial investment.
I think the revelation I've discovered since diving into entrepreneurship is that worth is not simply as black and white as how much money you're bringing in versus how much you are spending. Part of a business model appears to now be acquisition - it's like the analogy of do you want to offer a product for $100,000 to 10 users and earn $1mm, or do you want to sell a product for $10 to 100,000 users? In this case, it's selling 1 product (your business and it's userbase) to a customer (the parent company) for a large sum.
When you look at it that way, businesses are simply commodities just like the products that are offered within them. The business itself is the product. In that sense, the customer-facing product is simply just a mechanism to the greater product, which is the sale of the business.
I hope I've articulated myself clearly enough, but that seems to be the rationale that makes the most sense to me when I see seemingly "fruitless" businesses valued at exorbitant amounts.