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Investors are buying into Snapchat’s massive $16 billion valuation because its business is growing significantly. Or at least expected to grow significantly in 2016.
Snapchat is targeting between $300 million and $350 million in revenue in 2016, according to multiple sources familiar with the company’s plans. That’s six or seven times the $50 million in revenue Snapchat projected last year.
Snapchat’s business is still new and evolving, and advertiser interest is still very experimental. Essentially that means it can be tough to predict incoming revenue with much accuracy, as most advertisers don’t have Snapchat as a staple of their advertising plans.
The company hit a $100 million revenue run rate in Q4, according to one source. Advertising is cyclical, and Q4 is usually a strong advertising quarter, but it’s worth noting because the run rate metric gives us a glimpse at how the business is growing.
Still, boosting projected revenue like that must mean the businesses is growing at a nice clip. We don’t know if the $16 billion valuation is pegged to this year’s expected revenue, but if it were, that would amount to more than 50 times this year’s sales. Facebook, by comparison, trades at a value of about 17 times its annual revenue.
A Snapchat spokesperson declined to comment.
Snapchat has a number of different revenue streams, all centered on advertising. It has Live Stories, in which advertisers can sponsor a montage of photos and videos around a particular event, like the NFL Super Bowl. It hosts publisher content in its Discover section and splits revenue on ads sold alongside that content with those publishing partners. It’s also selling sponsored photo filters, which seem to be popular with political candidates.
Snapchat’s interest in ad technology may be one of the reasons the 2016 numbers are expected to be higher. Automating some of those ad sales through an API would make it much easier for marketers to buy ad space inside Snapchat.
The numbers may also be higher thanks to the 2016 elections. Bernie Sanders ran a nine-day Snapchat campaign before the Iowa caucuses. Ted Cruz used Snapchat to troll fellow Republican candidate Donald Trump. Snapchat hired a political ad salesperson in 2015 for this very reason.
Stabilizing these revenue numbers will be key for the company. CEO Evan Spiegel said in May that the company has an IPO plan in place, and Wall Street likes consistency. Hitting its 2016 target will help with that.
This article originally appeared on Recode.net.
