Only a few months ago, the tech blogs were marveling at an investment that valued the ephemeral messaging service Snapchat at some $800 million. It's just a silly toy for teens to send naked pictures to each other, they protested. How could anyone drop half a billion on that?

Now, the number is even more eye-popping: between $3 billion and $4 billion, according to reports. There is no precedent for that kind of valuation. At its peak, the photo-sharing service Instagram was valued at $1 billion; Facebook actually bought it for about $715 million. Pinterest has a multibillion-dollar price tag, but it also has revenue. Snapchat has nothing except its estimated 26 million users, and no apparent plan to make money off them. Earlier investors justified the $800 million valuation with the usual slate of reasons for betting on income-free startups: mobile first, fast growth, a passionate and youthful user base. But $4 billion is something else entirely.

So, what could the prospective funders be thinking?

"There was just no justification that any of us can come up with," says Josh Felser, a New York-based investor. "When I saw that, I thought, are we at the end? Is the bubble about to burst? On the outside looking in, it looks outrageous."

Nonetheless, there are a few ways to understand what's going on here.

First: While the social media titan Facebook is now a very valuable stock, it's showing weakness among teens, as it acknowledged in an earnings call Wednesday. Facebook tried to buy Snapchat but was rebuffed. What's more, it could be difficult for Facebook to build its own disappearing message service because users may not trust Facebook -- which doesn't have a sterling privacy record -- to actually destroy the message.

So, Tencent, the Chinese media holding company that's mulling the investment, may be thinking it can add Snapchat to its own suite of offerings in a way that makes it more competitive overall (or at least prevent Snapchat from falling into the hands of someone else).  And China, of course, is a gigantic future market.

"They're investing in a gold mine," explains Felser. "The gold mine is really big and exciting, but you don't know if there's any gold in there. The only justification is you want to be the next pillar of the Internet, and you think this gold mine is big enough to build the next pillar of the Internet."

And second: The $4 billion price tag actually has nothing to do with value -- not advertising revenue, user base nor any other typical metric of determining what a company is worth. Rather, that number is determined by the market, which right now is starting to look like the housing bubble of the mid-2000s.

"It's like a waterfall: If you think Facebook's worth $110 billion, then Twitter's worth $50 billion, and Snapchat's worth $4 billion," says Aswath Damodaran, a finance professor at New York University's Stern School of Business. "If you change your frame of reference, are they paying because they think it's worth $4 billion, or are they paying because they think they can flip it to someone else to $6 billion? As long as I can sell it to someone else for more in six months, who cares what it's really worth?"

That's not completely irrational, but it's risky, especially with something as insubstantial as a teen fad that could go out of style next week. As Damodaran explained earlier this month, you can make a lot of money on mobile advertising but the total size of the market is finite.

"The total advertising market is not there, which means something has to give. A lot of the companies you think are big winners are going to fall off the table," he says. "The market is using the same story for company after company after company. If you add up the stories, it doesn't make sense."

So, go ahead, Tencent, make that investment. If it pays off, you'll have played social media roulette, and won.