Why Evan Spiegel's 'poor India' comment could prove costly for Snapchat

Just about a week ago, Philip Hammond, the British chancellor of the exchequer, led a trade mission to India to boost India-UK trade relationship. The efforts were driven by the realisation that having already alienated the European Union, and with Donald Trump's America First policies, India remains the only large economy with a negative trade balance (imports exceeding exports) which can fill the proverbial void, with August growth forecasts of 7.3 per cent and 7.7 per cent in 2017 and 2018, respectively.

However, neither the bright economic outlook nor the sagacity with which we dealt with our colonial masters could impress some, who remain sceptical of associating with India. One of those is Evan Spiegel, the billionaire co-founder of SNAP, the company that owns Snapchat - an ephemeral chat application.

According to reports that surfaced yesterday, when asked about the sluggish growth in Snapchat's user base in growing economies, Spiegel said, "This app is only for rich people. I don't want to expand into poor countries like India and Spain."

The statement comes as a surprise to Indians, millions of whom are regular Snapchat users themselves. The only thing equally disquieting with regards to SNAP though is its valuation.

The company, which was founded in 2012, went public last month, and is currently valued at a whopping $23 billion, making it one of the most successful start-ups ever, and the second biggest tech-IPO in recent years after Alibaba (2014).

The valuation seems unjustified, unwise and even shocking for a company which has been generating revenue for only a couple of years, and is yet to turn profitable, while being under heavy fire from Instagram, which has been eating into Snapchat's user base after launching a Snapchat like feature last year.

Given these circumstances, SNAP investors must call into question the rationale behind the high-handed and seemingly misinformed opinion made by Spiegel about India, since antagonising Indians could prove catastrophic for the company. Here are a few reasons why:

1. Snapchat had nearly 158 million daily active users as of December 31, 2016. Since their top-line increases proportionately with the number of users, it's paramount for them to grow in India, where smartphone user-base grew six times as fast as the global average to cross 300 million last year, and is likely to expand further in the near future as the economy grows, and given the government's push towards digitisation.

2. According to SNAP, their user base is dominated by people belonging to the age group 25-34. At a time when the economies of Europe, US, South Korea, Japan etc are ageing, India is set to become the youngest country of the world by 2020, with an average age of 29, which syncs perfectly with SNAP's profile.

3. The primary (read: only) source of income for SNAP is advertisement. The company expects mobile advertising to be the fastest growing segment of the worldwide advertising spends, expected to grow from $66 billion in 2016 to $196 billion in 2020.

According to InMobiv, India ranks third in terms of the mobile video ads, the fastest growing mobile ad format today. Also worth noting is that unlike companies like Tesla, SNAP isn't into innovation that creates real tangible value. Its business model is barely proprietary (as proved by Instagram) and nascent to say the least, which implies that investors would have to depend almost entirely on the number of downloads and the resultant revenue from advertisement to recoup their money.

All this illustrates that India is poised to be a key market for SNAP given the large (and growing) number of young smartphone users, which highlights the naivety of Spiegel's statement.

It remains to be seen whether it's his attitude towards India, or the fortune of the company that changes first.

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