Snap and High Tech Valuations

Snap, the parent company of Snapchat, went public last month. The company’s market cap (the market’s valuation of the company) is now over $25 billion dollars. That makes Snap worth more than Hershey with a market cap of $22 billion, Campbell Soup $18 billion, or Macy’s $10 billion. Is Snap really worth that much? Snap is unprofitable, but that is not surprising for a young internet company. Most of them are unprofitable at first. What is surprising is that the company’s own management says that they doubt that the company will ever become profitable! That seems pretty shocking to me. This is what it says in Snap’s IPO prospectus: “Snap may never achieve or maintain profitability” and “We began operations in 2011 and for all of our history we have experienced net losses and negative cash flows from operations.” In 2016, the company lost $500 million, and they say that their losses are increasing. In their prospectus, Snap’s management says that they have no expectations or plan for eventually becoming profitable. Now can you explain to me why this company is worth $25 billion? I don’t get it. I really don’t get it.