system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: Why are popular iPhone/Android apps valued so highly when they are often free without built-in advertising?

Take, for example, the popular photo sharing app "SnapChat". As at October 2012, they had generated no revenue, the app is free to download, and there is no built-in advertising. Yet, the app is valued at approximately US$70m.

My understanding is that it's the **potential** for advertising revenue that makes it worth a lot of money, regardless of whether they actually employ advertisements within the app itself. However, I'm unsure on this.

Another example - Instagram - valued at over US$1b, no ads, free.
gpt
You are correct.  The value is not in the current revenues (which are non-existant), but in the active userbase that can be then monetized via some mechanism.  Instagram attempted to move to a sponsored linked based ad model, but the users didn't like it (or didn't like what they thought it was going to be).  The could also potentially move to a youtube like model where they could sell users content (for stock photo usage) and kick back revenue to the users.

Now that they are owned by Facebook, they don't strictly need to generate revenue directly.  If Facebook thinks that instragram adds value to Facebook users, they may be content making money indirectly via this added value to the main platform.