Will Snapchat’s Ambitious Valuation Last Longer Than its Posts?

23 February 2017
This article is more than 3 years old.

Every year, leading valuation and strategy consultancy Brand Finance values the brands of thousands of the world’s biggest companies. Snapchat’s brand has been found to be worth only US$1.7 billion. This is 8-9% of the suggested US$19.5-22 billion value range, an unusually low percentage which suggests that the value range may be over-ambitious.

Brand Finance’s CEO David Haigh comments, “'Brand Finance has valued the Snapchat brand from first principles. The brand value is relatively low because of low revenues and margins and an unproven ability to monetise the platform substantively. Snapchat has made its name by delivering posts which are here one minute and gone the next. Its users appreciate its ability to make their photos disappear, but over-excited investors certainly won’t feel the same about their cash.”

Snapchat’s brand value is in fact so low that it fails to make Brand Finance’s list of the 100 most valuable tech brands, despite the fact that its IPO is expected to be the 4th biggest in the industry’s history.

The full list reveals Twitter’s precipitous fall as its inability to prove itself and slowing user growth have caught up with it. Brand value is down 39% year on year to US$2.538 billion which sees it fall out of the top 50 to 83rd.

Apple is another brand to suffer this year. US$38.7 billion has been wiped off its brand value as optimism around its ability to innovate and sustain revenue growth wane. David Haigh continues, “Apple has struggled to maintain its technological advantage, with new iterations of the iPhone delivering diminishing returns, while the Chinese market is now crowded with local competitors such as Huawei. Apple has been living on borrowed time for several years by exploiting its accumulated brand equity. This underlines one of the many benefits of a strong brand, but Apple has finally taken it too far.”

Despite these notable casualties, on the whole this was another stellar year for tech brands, which achieved an average brand value growth rate of 26%, against a figure of 20% across all sectors. Google’s brand value rose 24% (from $88.2bn to US$109.4bn) overtaking Apple to become the most valuable brand not just in tech but across all sectors.

Chinese tech brands are performing particularly well. Alibaba’s brand value has nearly doubled to US$34.8 billion. Its success stems from the opportunities to both open up and simplify commerce for Chinese communities, particularly rural ones. It is now aiming to accelerate brand recognition and growth abroad by joining McDonald’s, Coca-Cola and Visa as a major sponsor of the Olympics Games.

WeChat has over 850 million users and despite being largely confined to its domestic market. It offers a more extensive range of services, than any comparable brand, from mobile payments to video games and text messaging to video sharing. As a result, it is far more embedded in the daily life of its average user, even replacing work emails for many Chinese. This central position in daily life builds an intense brand affinity, helping to build brand value to US$13.2 billion.

ENDS

Note to Editors

You can find more information and stories covering the world’s 100 most valuable tech brands in the Brand Finance Tech 100 2017 report.

Click here to read the full Brand Finance Tech 100 report document

Brand values are reported in USD. For precise conversions into local currency values, please confirm rates with the Brand Finance team. More information about the methodology, as well as definitions of key terms are available in the Brand Finance Tech 100 report document.

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Florina Cormack-Loyd
Florina Cormack-Loyd
Senior Communications Manager
Brand Finance

About Brand Finance

Brand Finance is the world’s leading brand valuation consultancy. Bridging the gap between marketing and finance, Brand Finance evaluates the strength of brands and quantifies their financial value to help organisations of all kinds make strategic decisions.

Headquartered in London, Brand Finance has offices in over 20 countries, offering services on all continents. Every year, Brand Finance conducts more than 5,000 brand valuations, supported by original market research, and publishes nearly 100 reports which rank brands across all sectors and countries.

Brand Finance is a regulated accountancy firm, leading the standardisation of the brand valuation industry. Brand Finance was the first to be certified by independent auditors as compliant with both ISO 10668 and ISO 20671, and has received the official endorsement of the Marketing Accountability Standards Board (MASB) in the United States.

Methodology

Definition of Brand

Brand is defined as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services, or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.

Brand Strength

Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors. Brand Finance evaluates brand strength in a process compliant with ISO 20671, looking at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance. The data used is derived from Brand Finance’s proprietary market research programme and from publicly available sources.

Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.

Brand Valuation Approach

Brand Finance calculates the values of brands in its rankings using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.

The steps in this process are as follows:

1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity, and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.

2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, while in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.

3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.

4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.

5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.

6 Apply the royalty rate to the forecast revenues to derive brand revenues.

7 Discount post-tax brand revenues to a net present value which equals the brand value.

Disclaimer

Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions presented in this study are based on publicly available information and certain assumptions that Brand Finance used where such data was deficient or unclear. Brand Finance accepts no responsibility and will not be liable in the event that the publicly available information relied upon is subsequently found to be inaccurate. The opinions and financial analysis expressed in the study are not to be construed as providing investment or business advice. Brand Finance does not intend the study to be relied upon for any reason and excludes all liability to any body, government, or organisation.

The data presented in this study form part of Brand Finance's proprietary database, are provided for the benefit of the media, and are not to be used in part or in full for any commercial or technical purpose without written permission from Brand Finance.