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This was published 7 years ago
Snapchat is pumping the next tech bubble with more hot air
By Ben Marlow
For much of the year, there has been a growing nervousness that the second tech bubble is about to burst.
Unlike the first dotcom bust of 1999 and 2000, which was triggered by the sudden collapse of companies on the stockmarket, the second coming has largely been founded on the eye-watering valuations that a new generation of tech companies have managed to achieve through private fund-raisings.
Across the globe, scores of businesses have reached so-called "unicorn" status - a valuation of more than $US1 billion ($1.3 billion).
In total, there are now approaching 200 globally that have achieved this mythical tag. Some of them are "mega-unicorns" - companies that have surpassed the $US10 billion mark, while a handful of superstars have hit truly extraordinary levels. Taxi app Uber is now worth more than $US60 billion and Airbnb, the darling of the sharing economy, has just raised another round of funds that values it at $US30 billion.
Snapchat has quickly become the social network of choice among millennials who use it to share photos, videos, texts and drawings.Credit: Bloomberg
Silly valuations for young companies, most of which make no money, and you have all the makings of a bubble that surely has to burst at some point with calamitous consequences for global markets.
The signs have been there for a while.
Confidence in the private market has taken a knock, with a fall in funding rounds for start-ups.
Fidelity, a high-profile tech investor, caused real panic when it slashed the valuations on a dozen investments. Meanwhile, some start-ups, including Uber, have been forced to go overseas to raise money at higher valuations, and the valuations of many big tech companies already on the stockmarket have slumped.
Yet, despite the concerns, the bubble is about to be pumped with yet more hot air, thanks to another flurry of vastly over-priced floats.
The most high-profile of these is Snapchat, a company that many people over a certain age will probably never have heard of, but has quickly become the social network of choice among millennials who use it to share photos, videos, texts and drawings.
Launched just five years ago by three ex-Stanford University students, its growth has been staggering. Yet despite being used by 150 million people every day, Snapchat generates sales of just £300 million ($482.5 million) a year and is loss making because its services are free.
However, apparently such matters are of no concern to the experts in Silicon Valley and on Wall Street, who value the app at $US25 billion.
Of course, it could prove to be the next Apple or Facebook - plenty think it could be - but the same was said about Twitter, Groupon and LinkedIn, and they quickly proved to be over-hyped.
Snapchat is likely to be followed by a string of other hot tech firms, including Pinterest, Dropbox and Spotify.
It may take only one to flop badly and 2017 could be the year the dotcom bubble 2.0 finally goes pop.
The Sunday Telegraph, London