Unicorns Dropping Like Flies: First Dropbox; Then Square; Now Fidelity Cuts Snapchat Valuation By 25%

Tyler Durden's picture

First it was Dropbox.

Two weeks ago we reported that one of the numerous "unicorns" prancing around Silicon Valley was about to have a very rude wake up call when Dropbox was warned by its investment bankers that it would be unable to go public at a valuation anywhere near close to what its last private round (which had most recently risen to $10 billion from $4 billion a year ago) valued it at.

Than it was Jack Dorsey's "other" company, Square.

Last last week: "today another company realized today just how big the second "private" tech bubble, one we profiled first in January of 2014, truly is. That company is Jack Dorsey's Square, which earlier today filed a prospectus in which it said that the "initial public offering price per share of Class A common stock will be between $11.00 and $13.00." Assuming a mid-point price of $12 and applying the 322.9 million shares outstanding after the offering, it means a valuation of $3.9 billionThe problem is that in its last private fundraising round, Square was valued at about $6 billion according to ReCode."

Today, it's the turn of Snapchat, the fourth most highly valued private tech start up.

According to FT, "Snapchat has been marked down by one of its most high-profile investors, raising further questions about the soaring valuations of private technology companies. Fidelity, the only fund manager to have invested in the four-year-old company best known for disappearing photos, wrote down the value of its stake by 25 per cent in the third quarter, according to data from investment research firm Morningstar. It had valued each share at $30.72 at the end of June but dropped the valuation to $22.91 by the end of September."

It is unclear why Fidelity marked down its stake but Snapchat is still searching for a sustainable revenue model.

It is also unclear if other Snapchat investors, such as VC titans Benchmark and Kleiner Perkins, as well as tech companies Alibaba, Tencent and Yahoo have followed Fidelity into what is becoming a widespread realization that not only was there a private tech bubble, but that it has burst.

A bigger question is whether it will be a controlled demolition as unicorns everywhere are demoted to what we first dubbed "zerocorn" status in the coming days. To be sure, the VCs are desperate for a controlled demolition, and hoping the broader market ignores the euphoria that took place in Silicon Valley over the past 3 years, is now over, and that giddy investors overshot by at least 25-35% to the upside in the past several private funding rounds as everyone was rushing to pass the valuation hot potate to ever greater, and richer, fools.

It remains to be seen how successful they will be, and just what the source of capital for hundreds of "$1+ billion"-valued, cash burning companies will be in lieu of generous VCs, and just how viable the second tech bubble will be if these hundreds of companies suddenly are forced to generate cash flow to fund themselves.

One thing we know: there sure are many of them, as this infographic from the WSJ proves:


And here is the stunner: the combined "valuation" of total US unicorns is $486 billion. Their combined profit? $0.

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knukles's picture

Unicorn burgers tonite!
I do nave conceptual troubles with "internet" firm valuations. 
Tulip Bulb Traits and Characteristics

pods's picture

Don't worry, there will soon be another app that allows you to send pics of your junk Carlos, don't be sad.


Neil Patrick Harris's picture

When are people finally going to start dumping TSLA? Tons of new competition, no profits, a battery factory subsidized by the tax payer that won't even run at full capacity because of a lithium oligopoly, not to mention a relatively low barrier of entry for any mega corp. Such a joke of an investment.

quintago's picture

This is because people are looking at companies like Yelp who are sitting on a ton of cash with no debt, and are actually generating revenues of over $500M, and are worth less than $2B. In fact, net of cash, less than $1.5B. 

Buckaroo Banzai's picture

Yelp delivers real, concrete value. And they are way ahead of the competition-- even though they've been around for years and years. Unusual for an internet company.

Snapchat helps people cheat on their spouses/significant others. My guess is, everyone under 30 knows at least one person who broke up with their significant other because they caught them snapchatting. How is that a business model. Great way to take advantage of the worst part of human nature, but tough way to make a buck.

quintago's picture

buck, fuck, what's the difference.

 -Wall Street

smartmil's picture

I was interested to cite your article in an upcoming essay for my english class about domestic surveillance. My teacher wants us to provide author qualifications, so I was wondering what I can cite as your qualifications?? Thanks!

Peconic Bay's picture

I live in San Francisco and work in Silicon Valley. Half of Tesla's customers are employees of these unicorn startups that are in the process of collapsing.  Expect to see the impact of the tech downturn hit Tesla sales.  The stock will be a modern day China Syndrome.

Consuelo's picture

Trim - the hedge accordingly.

813kml's picture

They made the fatal mistake of trying to show revenue.


junction's picture

Uber is a potential neutron bomb for venture capitalists.  Its business model depends on crooked politicians protecting Uber from workers compensation laws, labor laws (especially misclassification of workers as independent contractors) and auto insurance companies.  

RmcAZ's picture

Maybe if it gets a big enough valuation Uber will be "too big to fail" and they will have no choice but to bail out the company whilst simultaneously banning Uber from being used anywhere. Sounds perfectly plausible.

Grandad Grumps's picture

I do not know one person who has joined either Facebook or LinkedIn since they have gone public and yet, they keep reporting higher revenue and more members.

Maybe they have members like Hitlery has Twatter followers.

knukles's picture

Hell, I know people been quitting these types of services! 

nuubee's picture

Look at almost any social media post stream and it literally reads like an advertising rag.

I like my friends, but I don't want them to market themselves to me. If it isn't a buddy who is promoting his dance studio/club/event, it's a woman who is advertising her body with standard attention whoring. If it isn't attention whoring by women, it's political fighting over bullshit the elites have put in front of people to be pissed off about.

No thanks people, I'll take a page with words, or simple music in a good atmosphere over the uncaged fan-in-the-shitstream that social media turns into.

Grandad Grumps's picture

I am thinking that the whole social media fad was simply designed to make us realize how empty and worthless it is and how important direct human contact is to a healthy society.

People will figure it out and the fad will pass.

highandwired's picture

I think you underestimate the stupidity of the Sheeple.  Here's a good visual:  https://veritasvirtualvengeance.files.wordpress.com/2012/05/apple_planne...

2muchtax's picture

it's funny how we all understand that opinions are worthless, but an app to share your opinions is worth billions.

Grandad Grumps's picture

To whom?

Price and value are completely different. Price is controlled by those who price it. Value is different.

Anopheles's picture

But if it has no value, then what's the price? 

Kprime's picture

If it has no value, it's priceless.

Sokhmate's picture

I think I have the answer for you.

Opinion to asshole relationship is many to one. But that does not imply that the ass hole is worthless. One would die without such an orifice. On the other hand, lack of opinions does not endanger the asshole's life. As such, apps to share opinions should have been described more accurately as 'share your assholery' or some such. But a marketing genious wanted to decouple the ass hole from its strong association with scat.

Sudden Debt's picture




buzzkillb's picture

Are these valuations purely based on how much the tax payer is paying the govt. to spy on the tax payer?

herkomilchen's picture

Advertising.  The customer is the product.

inhibi's picture

Yes, but imagine what is gonna happen when everyone realizes that:

A. 30% of traffic is by bot

B. No one fucking looks at online/app adverts.


Also, how many times can a company sell your personal info or metrics? I mean seriously, how valuable is it to know that, yes, 16-21 year olds sext eachother more often than 10-16 yr olds?


Also, Snapchat worth more than SpaceX? LMAO

delivered's picture

Ya think that the smartest men in the room would understand one of the most basic and fundamental concepts in business - "Sustainable Revenue Model". Google and FB own/control the digital advertising spend space and aren't for a moment going to allow companies like Snapchat to take marketshare. This dog probably isn't even worth 10% of its last valuation of course the writing on the wall should have been when parties outside of the SV incest pool brought money to the table (i.e., Fidelity). They may understand income based investments (e.g., commercial real estate) but have no fucking clue what they are doing in the social tech space. A fool and their money soon part ways, a lesson Fidelity just learned.

Anopheles's picture

As you say about a fool and his money....


Exon PE - 17  + 3.5% dividend

Apple PE - 13  + 1.7% dividend

Google PE - 30  - No dividend

Facebook PE - 107 - No dividend



Grandad Grumps's picture

What I think is ironic is that all of the people who get funded and get rich creating all of the above useless companies may actually think they are doing something of value ... or maybe it is just for fiat gain in a financialized society that has trivialized work, value and wealth... and they know their own hypocrisy.

Bill of Rights's picture

What do all these over valued APP companies have in common?


They produce NOTHING...

Consuelo's picture



Neatly trimmed 3-day stubble metrosexual code-writers digging ditches in the rain.   Can you picture it...?


Angry Plant's picture

American ghost corporations is what I would call them not unicorns.

Ajax_USB_Port_Repair_Service_'s picture

Is there ANY company on the list above that provides a necessary product or service?

herkomilchen's picture

Warby Parker does a good job making eyeglasses.


yogibear's picture

Repeat the DOT COM model and apply it social media. Simple.

Then apply Eron accounting to make it real attractive.

Rinse and repeat. Sarbanes–Oxley is a joke.

Broccoli's picture

There was a insightful zerohedge article a while back about how the private funding valuations are bullshit because the smart VCs and investors have agreements to be issued additional shares if the valuations fall. So the price per share may go down, but they just get issued new shares.

Fidelity, not being a member of the VC club, may not have such agreements but I wouldn't count on any of the big players actually taking losses on their investments if valuations fall by just 25%.

Stay Frosty's picture

Hey Charile.  Wake up.  We're going to Candy Mountain.  Yeah, Candy Mountain.  Come with us Charile.  It will be an adventure.

ThroxxOfVron's picture

Denninger has been discounting the whole social media and new/share economy cotton candy sector for years.

I think he has valued most of this shit at ZERO.

VegasBob's picture

Of course it's a zero.  Social media is worth about as much as turds in a toilet.

ThroxxOfVron's picture

Who'd have thunk that people, while in the midst of a global depression, would squander a large segment of their ever diminishing real incomes by chosing to gossip to one another on foreign slave-labor manufactured spyware designed to discount their future credit and employment opportunities?

pitz's picture

The irony is that the users aren't spending much if anything.   I don't know anyone who has ever paid to use Facebook or any other social media site for that matter.   And that's the problem for most of the startups.  They simply aren't collecting much revenue from advertisers who mostly happen to be other social media tech companies.  The real 'losers' here are the VCs and the investors that back them, who will see their money basically vapourized as the flush is applied to the 'industry'.



adr's picture

I remember when my previous company had $35 million in sales and our closest competitor had $20 million, even though they blew through $50 million in VC money in six months. We had no VC money. Wall Street valued our product category in 2009 at $3 billion by 2014. Well the joke is on us because both companies were out of business by 2014.

Of course we were in the physical product market. If we made an app that put photos of our product on people, we probably would have been valued at $20 billion.


The thing to get from this is that Wall Street valued a market they were clueless about at $3 billion on the back of two companies doing combined revenue of $55 million. At least we had real revenue and real profit. But where was the $3 billion going to come from? Wall Street didn't care, they were pumping up our supposed market space in the hopes we would IPO and make a few people rich.

The majority of the unicorn valuations come from advertising revenue. For what? If people can't afford to buy anything, how is advertising going to do any good?

Anopheles's picture

And that pot of advertising dollars is relatively fixed. 

Yet every single one of the companies claim their advertising revenue is going to increase by 100 times over the next few years?    For even one company to increase their advertising revenue, that means someone else has to lose. 

pitz's picture

That pot of ad dollars is likely in decline as businesses realize they can't advertise their way out of a depression and are best off preserving their cash. 

Bangin7GramRocks's picture

Square is actually a good company. Like it or not, they are well positioned for the cashless society.

Bastiat's picture

More and more people are "cashless" every day too!

ThroxxOfVron's picture

The new cash flow less economy where earnings don't matter.

GotGalt's picture

Square is not really that well positioned.  Competition is fierce in this space, and the number of players just keeps growing.  Even the banks themselves are creating their own pay apps to take the pie away from square, paypal, apple/google pay, etc.