This article in the WSJ details the challenges that Snapchat will face in generating advertising revenue.
According to Barclays, the best ad lever that Snapchat has is it's stories feature, which stitches many different snaps together, and makes them available for 24 hours. Ads using the stories feature currently generates about 25% of the company's ad revenue, with the rest coming from sponsorships and other publisher content.
Outside of Stories, Snapchat doesn't have any algorithms to allow for seeing ads in the user experience, unlike Facebook. Facebook has a news feed where ads are placed between posting to posting.
The problem is, using Stories to create ads is costly, and since there's no share feature, it doesn't have the ability to go viral. The valuation of Snapchat is quite impressive, but it sounds like the business model still needs to be determined, and there's risk that it never is. Given this, I'd probably short the stock.
https://www.wsj.com/articles/snaps-challenge-how-to-grow-without-getting-awkward-1497528001
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