How app that’s never made a profit is now worth £18bn

. . . and made its founder £3bn

PHOTO-MESSAGING app Snapchat will float on the stock market with a value of £18bn it was revealed yesterday – despite never having made a profit.

The valuation of the US firm, which lets users send pictures to friends which disappear seconds after being viewed, has astounded some experts because, as well as spiralling losses, its sales are a fraction of comparable firms.

For example, British grocer Tesco is valued at £15.9bn, but has sales of £54.4bn. By comparison Snapchat’s sales are only £324m – around 167 times less.

Twitter, with a market valuation of £9.7bn, has sales of £2bn.

The float of Snapchat will hand a multi-billion pound payday to founders who include Evan Spiegel, who is engaged to model Miranda Kerr (pictured).

And it has raised fears the company has been overvalued after it lost £412m last year and warned it might never be profitable.

Neil Wilson, market analyst at ETX Capital, said: ‘Loss-making tech firms with a limited prospect of making a profit listing on the stock market has an all-too-familiar ring about it. Snap’s IPO has the hallmarks of a dotcom bubble and this should have investors running for cover.’

Snapchat was expected to be valued at about £20bn, meaning its proposed price falls below expectations. Investors had raised concerns over competition from Facebook, widening losses, and a controversial arrangement giving full control to its founders even when the shares are sold.

Stanford University friends Evan Spiegel, Bobby Murphy and Reggie Brown launched the app five years ago.

It has moved on from simply allowing people to send disappearing pictures, to adding humorous features to photos.

Users can also create a ‘story’, which allows people to assemble videos and photographs from the past 24 hours.

But it has faced competition from Facebook-owned Instagram, which launched its own stories feature, and it has failed to keep up with its larger rivals in battling for lucrative advertising.

Hannu Verkasalo, chief executive of Verto Analytics, said: ‘There are questions about the sustainability of Snapchat’s app – particularly whether it will continue to be championed by younger people in the future, on whom it is so reliant.’ Spiegel, 26, and Murphy, 28, will see their holdings fall from 22pc to 14pc after flotation. Including a bonus over the next three years, it would make Spiegel worth £3.4bn.

He will hope to avoid a repeat of rival Twitter, which, with a market cap of £9.7bn, is far below its own 2012 valuation of £14.2bn. Twitter shares listed at $26 (£20.84) each, but are now around $16 (£12.82).

Snapchat’s number of users is growing, reaching 158m each day. Revenue is too: it made £47.3m in 2015, but that rose by almost 600pc the year after.

But losses have widened from £299m in 2015 to £412m last year, as expenses ballooned.

Russ Mould, investment director at AJ Bell, said: ‘It remains to be seen whether advertisers feel they get value for the exposure Snap can offer.’

Mould said Snapchat closely resembled Twitter, which also floated on the back of rapid user growth – but failed to convert this into advertising revenues.