Snapchat Inc. which makes a free app called Snapchat for sharing quick disappearing images and videos has recently raised a funding of $175 M from Fidelity at a $16 billion valuation, according to the Wall Street Journal.
The catch is that Snapchat’s last round of funding in May 2015 reportedly valued the company at $16 billion, a 60% bump from its previous round in December 2014.
Fidelity bought shares at $30.72 in February after paying that price last March. In the fourth quarter, a separate valuation committee at the mutual fund brought down the shares to $25.75.
The investors must have gone cautious after observing the inability of Snapchat to raise funds at a higher valuation than a year ago. In recent months also, the tech startups like this have raised capital at the same or lower valuations than earlier, putting a barrier upon the companies’ ability to recruit and retain talent also adding that the era of runaway growth in valuations is ending.
Still, at $16 billion, Snapchat is the sixth mostly highly valued venture-backed company in the world.
Fidelity’s investment comes despite the mutual fund’s own wavering about Snapchat’s valuation. Fidelity slashed its stake in the company by 25 percent during the third quarter last year. But last fall Fidelity marked its stake back up by about 15 percent.
Besides the fact that Snapchat is one of the most popular apps among millennials, with more than 100 million users viewing 8 billion videos on the service every day, it has not proven its worth as in revenue generation. Though the company is making money by the sponsored videos or photos in its live section, and photo filters called “Lenses”, yet its barely satisfying!
A flat valuation isn’t usually a great sign, but the raise comes at a time when most of the tech companies are raising down rounds, or taking money at a lower valuation than their last fundraising.
Keeping that in mind, the funding is not bad at all!