Snap chat produces a service, and has a sizable amount of customers who purchase it (For $0 albeit), claiming to have more than 100 million active daily users in 2015 (Not very impressive in my opinion for the type of company it is). As mentioned, advertising revenue can add up to quite a bit, even if your service is free to use. Collecting information about users and selling it to third parties can also net you quite a bit of money.
In Snapchat's case though, the revenue coming in from advertising as well as any other sources they have is not currently anywhere near sufficient to meet their costs and create a profit. That being said though, a look at their prespectus will tell you they were able to impressively increase revenue by 589.5% from 2015 to 2016. The robustness of their business is brought into question once again however when you take a look at their costs and realize they increased by 110% during this same time period and actually had a larger dollar increase ($345,819 for sales as opposed to $484,475 for costs).
To value the company at $31.35 Billion, at the time of this writing, investors must expect that they will eventually be able to accomplish one or both of the following : 1. Trim costs to get them under revenue 2. Raise revenue to get it above costs. I'm sure the company has its own strategic plan to do so, and it may have already even revealed some of that plan in its prospectus or other press releases.
So, to answer your question in the simplest way possible, the company is valued as high as it is because people believe it can generate profits in that amount or greater (after discounting) sometime in the future.
"I must be missing something.. Snapchat's existing revenues are what ? How do investors figure a "return on investment" ? Sure, I get that it's largely a speculative caper.
But if you take facebook, about $540 billion,Twitter about $15 billion ? & Snapchat, at $44 billion there's about $600 billion & these are companies that don't actually produce anything, eg unlike Samsung or Intel, or Microsoft who do, I can't see these "internet chit chat" companies as anything more than platforms for advertising, and I'm curious as to how they think they will get people to pay for content... Millennials hate to pay for downloaded content, it's one of the key things that defines them.
So I just can't see how a rational investor would invest in Snapchat. Obviously I'm a fuddy duddy who just doesn't understand."
Your characterization of millennials is way off here. Perhaps you are not aware of micro transactions? People paying for things within products they already have or have not paid for. This is a huge source of revenue for many tech firms. Millennials (And other age groups as well) aren't satisfied with the base product they buy, and many develop the urge to splurge extra money on it when the creator offers extras. This is how apps such as Clash of Clans are so profitable.
"Also, low risks with such a large user base."
I greatly disagree here, and can actually kinda prove it through basic reasoning. First, you have a company with a product/service offering that is not diversified at all, their revenues only come from a single offering. Next, you have intense cutthroat competition in the industry that the firm belongs to. Then you have the fact that we are talking about a tech company whose offerings could become obsolete tomorrow if something changes in the marketplace in terms of what is out there or just in consumers' preferences (kinda similar to the last one. Finally, there is the fact that the company needed to make an IPO in the first place. Raising capital through stock offerings is much more expensive than raising it through debt. The reason a company may need to raise capital through issuing stock instead of debt is that many are just too risky for anyone to be willing to lend to them at reasonable interest rates, this happens to most tech firms.
"Take Google as an example, what's the performance of Google paying dividends to shareholders ? For example, I have shares in "blue chip" companies that consistently pay reasonable dividends ..that's why I invested..for capital growth and dividend income. Also those godless Socialists in the ALP federal government introduced tax reforms in the 1980's to end the "double taxing"of company profits & dividends, and that give me a tax credit on dividend income.
Before these reforms a company paid tax on nett profits, then paid out a proportion of that after tax profit as dividends to shareholders, who then would have to pay tax on their dividend income.
After the reforms companies had a choice, they could pay dividends from untaxed profits ( called unfranked dividends ) and the shareholder has to pay tax on those dividends.
Or the company pays dividends on "after tax" profits ( called franked dividends ) ..on these dividends the shareholder pays no tax, and gets an "imputed" tax credit that they can use against other taxable income to reduce the tax owed on that other income.
( sorry Capt Brad, but occasionally these lefties do these things, like float our dollar, reform taxes in sensible ways )
So like a lot of investors, I invested in companies that consistently pay me "franked" dividend income.
So what's the performance or expected performance of these companies like Google, Twitter, Snapchat in the "paying dividends" caper ? ( because I get the impression that they might not be expected to pay much in dividends to shareholders, which might be wrong )"
I only looked at data going back for the last 10 years, but Google has not made a single dividend in that time period, so I'm going to go out on a limb and say they've probably never paid a dividend because I don't feel like going and searching for older data. Twitter has never paid a dividend either, and obviously Snap hasn't since it just had its IPO. It's important to note though that companies don't always refrain from paying dividends because they can not afford it, some do it willingly because they believe reinvesting the money in the company is in the best interest of the shareholders and will create longer term value for them. I can tell you Google could pay a dividend if it wanted.
And as far as corporate profits being double taxed, that's still a thing here in America. We haven't gotten around to fixing that yet, unfortunately.
"I don't see why you think that Google etc. pay less dividends, but if it is true, there's nothing wrong with that policy really. The assets of the company and therefore the real value of your shares are higher if the company doesn't pay out dividends.
Both value increase and dividends are profit. I would rather have a company in which I hold shares reinvest that money if there are solid investment options instead of paying out.
If I want cash, I'll just sell shares."
Because they do pay less, see above. As far as there being nothing wrong with that policy, that is only partially true. In the short term, it is a preference on whether you want/need a company to pay you dividends, some people like it while others don't. In the long term though, it is a real issue if the company never pays any dividends. If I told you that you could buy some shares in my company, and that profits were guaranteed to be enormous for decades, but I would never pay a dividend, would you buy those shares? 9/10 people wouldn't. While it is true that the value of your shares should rise in tandem with the profits, you may never be able to realize a cent of those profits if I own the majority of the shares and decide to not instate a dividend. Others could buy the shares off of you for more than you paid for them resulting in a capital gain, but who would be dumb enough to buy them from you if they would never get paid for them? This is all assuming that a single person or group of people have control of the company and its board of directors through a majority control of the shares though, which isn't always the case.
Shares only have value in the first place because you are expected to be paid more money over time than you paid to obtain them. In short, dividend policy can be very complicated and difficult for a company. A large number of those price targets you see for stocks are calculated by analysts using discounted cash flow analysis where the price of the stock is solely calculated as the sum of all future discounted dividends. With future dividends expected to be zero, the stock price is also expected to be 0.
In short, dividend policy is quite complicated and very difficult for companies to implement, lots of decisions have to be made that will effect the stock price.
"^ what steephie said, though I do invest in stocks (specifically, for funds I need in the mid term I just buy the market). Then I keep some other stuff around for investments in my own or friends' businesses. I figure I can make better judgments on businesses I have better access to than actually picking stocks with listed firms that other people have a lot more information about that I do."
This last part is actually illegal and called insider trading. All market participants are by law supposed to be able to trade only on publicly available information. There should never be a time when someone else has more information about a company than you do, unless it is someone who works there but can't trade the stock on that special information for example. Of course, insider trading still does happen even though it is illegal, but it is the exception rather than the rule I think.
"So, refuse to merge into a massive company and forever be purged? Sounds scary. That kind of sabotage should definitely not be legal."
Competition should be illegal? I disagree.
"The dotcom bubble is happening all over again. When the bubble bursts in a few years time these unicorns are going to implode on a massive scale."
A few years? I would estimate it at a lot sooner than that, personally. Discalimer- This is not a solicitation to buy, sell, or hold any security. The opinions expressed are my own and for informational purposes only.
"1) The world I operate in right now is not investing: it's startup businesses. I would insist on being briefed on the business plan etc., and if there are flaws in the plan, team, expectations/assumptions or commitment, I think I will notice them and avoid investing in such a business due to my experience. I would really focus on the few businesses that really have brilliant formulas, people and execution plans in my opinion."
That's still investing, it's called private equity. Most people who invest in that way have to be accredited I believe, though there could possibly be a fund or two out there who would let the average person in. If it is something you are interested in, read up about it.
"4) I'm aware that the risks are traditionally high, but I have a far better understanding and inside knowledge, plus the potential reward is massive as well."
This is at the core of private equity. Funds will invest money into 100 different start-ups, and if just 1 of them turns out to be a success, it can more than offset the losses from the other 99. The winners have huge returns.
"5) I'm not just trying to enrich myself. Ultimately, I aim for financial freedom. I am quite a minimalist in my private life, so that's not as hard for me as for most, but still hard of course.
The point here is that letting someone manage my money for hopefully an ok return doesn't really help me reach my goal, I think."
Historically, the return for the market as a whole, represented by something like the S&P 500 index, has been around 10% for the average year. I wouldn't say that is just ok, that is well above what inflation has been historically, and much better than the risk free rate in the form of the 10-Year U.S. Treasury. It's not difficult to get a good return from stocks, though if you are looking for something upwards of 20% on a consistent basis, that is hard to find anywhere. Your options really then turn to private equity as you have suggested or the lottery.
Mod team announcement
)
)
)
)
)
)