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Here’s why Snapchat has doubled in value

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Snapchat is seeking to raise as much as $500 million in a new round of funding, which would value the company at as much as $19 billion. That’s almost twice its valuation after its last round of funding, a year ago.

Snapchat’s growing audience of teens and young adults is one reason for the increase, says Julie Ask of Forrester Research.  “We don’t know how much [Snapchat has] grown their audience, but my guess would be is that it’s big,” Ask says.

Snapchat is a private company, so it hasn’t released a lot of details on its audience. But educated guesses put its growing base of teen and young-adult users at anywhere between 100 to 200 million.

“There is scarcity of companies and options out there that have audiences as large Snapchat,” says Ask.

Investors are willing to place big bets, says Ask, on companies that can monetize audience–particularly a young one. And “Snapchat has figured out a monetization model,” says Brian Solis of Altimeter Group.

Snapchat is now selling ads for a rumored minimum price of $750,000 a day, and has recently published content channels with news and entertainment.

“They understand the psychology of teenage engagement and communication,” says Solis.

Not everyone is sold on the valuation. “Were I to be a Snapchat shareholder,” says Paul Kedrosky, a partner at SK Ventures and a technology equities analyst, “I would be very happy selling to the people buying at $19 billion.”

Kedrosky says that Snapchat investors are probably hoping an eventual IPO will come in at more than $19 billion,  so that they can cash out. Others may believe the company eventually will be sold at an even higher price (just as WhatsApp was bought for $22 billion by Facebook).

“This is a house of cards,” Kedrosky says, referring to Snapchat’s valuation. “The numbers themselves are in no sense credible.”

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