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REUTERS/Lucas Jackson
Fizzle.
DIAL IT DOWN

Snapchat’s lofty $16 billion valuation takes a hit

By Alice Truong

Deputy editor

On paper, Snapchat was worth $16 billion after raising its latest round of funding in May. But it appears some of the excitement around the disappearing photo app has since faded.

Fidelity recently lowered the value of its stake in the four-year-old company, reports the Financial Times. Data from investment research firm Morningstar show that, at the end of September, the fund manager revised the value of its shares in Snapchat to $22.91 from $30.72 in June, a 25% cut. It is not clear when Fidelity invested in Snapchat or the size of that investment.

Snapchat was not immediately available for comment. A Fidelity spokesman said the firm does not “comment on individual companies.”

Though it remains unclear what motivated the markdown, Snapchat, like many of its privately held peers in the tech industry, remains unprofitable. The company reports 100 million daily active users and sells ads as well as ”sponsored lenses” with special photo effects. The company, which has raised more than $1 billion to date, received backlash in October for rewriting its terms of service with expansive language granting it the right to host, edit, and promote users’ photos.

But Snapchat’s markdown more broadly reflects looming concerns on the part of investors over whether tech startups can justify their lofty valuations. Square, for instance, recently revealed that it will try to go public with a valuation of about $4 billion—a third less than the $6 billion private investors had valued it at as recently as October of last year. Dropbox is facing questions over its ability to live up to its $10 billion valuation if it goes public.

Fueled by low interest rates, a number of startups have been able to build businesses based on promising user growth (and to some degree, hype). But with investors bracing for a rate hike, they’ll likely become pickier in placing their bets. And, as with Snapchat and Square, some of the sky-high valuations will likely come falling back to earth.