Snapchat’s $10B valuation and the weekly roundup in tech and retail

News and commentaries

I did not balk at Instagram’s $1B acquisition by Facebook nor at Dropbox’ estimated $10B valuation. I believe that both address certain needs. Instagram was widely used in fashion, an industry that most people continue to underestimate. Dropbox, based on experience, is the easiest way to manage files in the cloud and addresses students, teachers, professionals, as well as enterprises. But it seems that recent billion-dollar valuations in the tech space have been based not so much on their business models but rather on how much of an acquisition target they can be.

Looking at Snapchat‘s recent valuation of $10B, I do balk a little. Admittedly, I have not taken advantage of the app’s ephemeral messaging features, which I imagine, are used for drunken messaging and sexting. I don’t necessarily think these features are solving a need so great that people will eventually pay for it. Furthermore, the app’s demographic of teenagers are quite a fickle bunch. However, as an acquisition target, the $10B valuation makes some kind of crazy sense. Kleiner Perkins Caufield & Bryers, the venture capital firm leading Snapchat’s round, must have some really good inside information of how they can profitably exit this one. Google, Apple, Facebook and even Amazon have to fight to stay relevant especially among the elusive millennials. If these companies want to have a pipeline of young users to whom they can eventually sell anything to, then Snapchat and others like it are an expensive but necessary buys.

Read on for this week’s most relevant news in tech and retail:

In tech:

  1.  After failed talks with Google, Amazon acquires game streaming site, Twitch for $1B
  2. Apple sends invites for September 9 keynote event, may launch iPhone 6 and iWatch
  3. Dropbox announces lower pricing, new features and offers 1TB cloud storage for $9.99/month
  4. Instagram releases new app, Hyperlapse, turning shaky videos into time-lapses
  5. Fashion wearables: Ralph Lauren with OMsignal launch high-tech biometric shirts at the US Open; Rebecca Minkoff will debut 2 bracelets for charging and notifications at next week’s runway show

In retail:

  1. Quarterly reports: Salvatore Ferragamo second quarter reports show higher than expected profit of €90M, up 8% from last year; Tiffany & Co. second quarter earnings are up 7% compared to last year, raises full-year forecast
  2. Alibaba reports April-June results of 46% increase in year-on-year revenue of $2.54B, fuels the fire of impending IPO; IPO roadshow rumored to start after Labor day
  3. Dalian Wanda Group enters into a ¥5B e-commerce joint venture with Tencent and Baidu
  4. Abercrombie & Fitch  to remove logos after disappointing second quarter revenues of $891M, a 6% drop from last year
  5. E-commerce startup JustFab raises $85M at a valuation of $1B

Are we in a tech bubble?

News and commentaries, Technology

Google now has an Instagram account. Some people might argue against me but I think that this signifies the encompassing relevance of Instagram these days. I remember when Facebook acquired Instagram for $1B (the amount was actually $730M due to Facebook’s stock price decrease of $31/share to $19/share when the deal was completed) and some naysayers thought that this was crazy and pointed to a tech bubble.

Consider the following:

  • Instagram had zero revenues.
  • It was only 551 days old.
  • There were 30M users which made the acquisition at ~$33/user.
  • The company had only 13 employees.

Fast forward to today and the service now has 200M monthly active users with an average of 60M photos shared per day. Since November 2013, some brands are advertising to this audience and they are supposed to be effective. Searching through Facebook’s 2013 annual report does not say how much revenue the company makes from Instagram but big-profile deals such as the one with Omnicom is valued at $40M. And Instagram is just starting. Luxury and mass-market brands use it to engage with Instagram users. It would be interesting to see how much money they will make once users can click to buy within the app.

But Instagram might be an exception rather than the rule and with recent multibillion dollar acquisitions (rumored or realized) and sky-high valuations, those people talking of a bubble must be frothing at their mouths by now.

Recent billion/multibillion dollar acquisitions:

Recent multimillion fundings:

So are we in a tech bubble? Some argue that the dotcom bubble in 2000 was caused by a bunch of companies that IPOed without a revenue stream, a business model and pushing products to a limited audience – only 51M households/51% penetration. This time, companies have some form of revenue and operating in an environment with 279M users/87% penetration in the US alone and 2.9B users worldwide. It’s for this reason that I’m in the camp of saying there is not tech bubble just yet.

Which camp are you? I’ll leave you with a June 2011 Economist Debates: Tech Bubble for a great discussion on this issue.