Actually, Snapchat's $15B valuation makes total sense: Blodget

Alibaba is reportedly investing $200 million in Snapchat, putting a $15 billion valuation on messaging ap start-up. Snapchat is less-than four years old and known to many as the place for "sexting" and other illicit behavior because messages disappear after being viewed. In that context, $15 billion seems totally outrageous.
 
But many of the people crying 'bubble' over Snapchat's valuation are the same people who said the company was 'crazy' to turn down Facebook's $3 billion offer in 2013. "As with Twitter, Facebook and all the other companies when there's a big number on the valuation...they were dead wrong 100% of the time," Henry Blodget declares in the accompanying video.

The skeptics and the naysayers aren't wrong 100% of the time but Henry's point is there is a method behind the seeming madness over Snapchat.

First and foremost, the kids love it and advertisers have always been desperate to reach them, and never more so than today when there's almost as many different ways for people to consume digital information as there are providers of it. Snapchat has over 100 million users and 71% are under 25 years old, according to DRM, a marketing research website.

"It's growing incredibly rapidly and those kids in 10 to 20 years are going to be the mass market," Blodget says. THere's a lot of promise. You have to take it on faith they'll figure out a model. But in the past, for all of these other social networks and Internet companies, attention has been monetize-able and Snapchat has that attention."

Furthermore, Snapchat has evolved beyond its original 'disappearing messages' origins. Among other features, Snapchat in January launched 'Discovery' where users can watch videos created by premium content providers, including National Geographic, Vice, CNN and Yahoo! Inc., the corporate parent of Yahoo Finance.  (Disclosure: Yahoo Inc. is an investor in Alibaba.)

"Snapchat Discover is a new way to explore Stories from different editorial teams," according to Snapchat's corporate blog. "It’s the result of collaboration with world-class leaders in media to build a storytelling format that puts the narrative first. This is not social media."

According to re/Code, ads on Discover are fetched around $100 per thousand view "a rate that’s something like twice what a premium video publisher can get, and many times what a mere Web publisher can command."

That may explain why Alibaba agreed to invest in Snapchat at a $15 billion valuation, one of several investments the Chinese Internet giant has made in U.S. startups, including Lyft, Kabam and TangoMe.

Tango is a messaging ap and Alibaba's desire to compete in the fast-growing messaging ap market is also key to its Snapchat investment.

"Critical to understanding Alibaba’s interest in messaging is that rival Tencent’s WeChat app utterly dominates China to the point that it can be considered the de facto mobile intranet for the country," writes Tech Crunch's Jon Russell, who calls losing China's messaging-app race Alibaba's "single-greatest failure as a business."

Whether investing in Snapchat, which is currently banned in China, can recitfy that failure remains very much to be seen. But given Alibaba's size and heft, they can certainly afford to try at almost any valuation, sane or otherwise.

Aaron Task is Editor-at-Large of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.