Is Snapchat really worth $10 billion? Investors think so

Snapchat is third-most popular app among millennials after Facebook and Instagram

Snapchat is said to be near a round of funding at a valuation of $10 billion from investors including venture capital firm Kleiner Perkins Caufield and Byers.

The Los Angeles-based start-up, which makes a mobile application that sends disappearing photo messages, earlier had been in talks for financing at a $10 billion value, including discussions with Alibaba, people with knowledge of the situation have said.

While the conversations with Alibaba ended without a deal, the startup continued to meet with other investors, the people said earlier this month.

Snapchat, led by chief executive officer Evan Spiegel, makes the third-most popular app among millennials, after Facebook and its Instagram photo app, and it's used by 33 per cent of 18-to-34-year-olds in the US, according to ComScore Inc.

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The funding would value Snapchat at more than three times what Facebook CEO Mark Zuckerberg offered to pay for the start-up last year, making Spiegel look prescient for turning it down.

Snapchat has yet to unveil a business model. Even though advertising isn’t an option, marketers have been experimenting with ways to reach the application’s users, said Debra Aho Williamson, an analyst at EMarketer.

Taco Bell, for example, has been sending out doodle-enhanced ephemeral photos using the company’s Stories feature, which makes posts available for 24 hours.

"They're intrigued with Snapchat because they see that usage is growing and it's getting popular among the younger demographic," Aho Williamson said of advertisers. "They see an opportunity to be more creative and test out new types of advertising they can't do on Facebook or Twitter. "

In a corporate filing in Delaware on August 4th, Snapchat authorised 17.4 million shares of new preferred stock, an increase from the 1.2 million shares a month earlier, in a precursor to selling a stake in itself.

The shares are valued at a fraction of a cent, according to the filing.

“The valuation of our business and our capital requirements are the least exciting aspects of supporting the Snapchat community,” Mary Ritti, a spokeswoman at Snapchat, wrote in an e-mail yesterday.

“We have no further comment at this time.” Christina Lee, a spokeswoman for Kleiner, declined to comment.

The Wall Street Journal earlier reported Kleiner’s involvement in Snapchat’s funding round.

Bloomberg