We’ve been asking ourselves in our investment management shop for some time if we have finally reached the peak of the “unicorn” phenomenon. For those who may be unfamiliar with the concept, it is a term now used to describe a venture-backed private company that has reached a $1 billion valuation before it goes public. The early pioneer in that realm was Google, who went public in 2004 at a $24 billion valuation. Facebook went public in May 2012 with about a $104 billion valuation. Clearly, Google and Facebook have been successful post-IPO as Google (now Alphabet) is worth almost $980 billion. Facebook is worth about $624 billion. These early multi-billion IPO valuations were a distinct change from the previous IPO paradigm and led the way to a new era of companies waiting to IPO until their valuations were stratospheric compared to the preceding era.
For some context, in March 1986, Microsoft went public and its first trade on public markets was at $21 per share. It had 24.7 million shares outstanding for a total value of about $518 million. This was a big deal for the time, but it’s amazing to think that less than 20 years later (even with inflation considered) Google went public with a $24 billion valuation. Take a look at another 1980s iconic tech company: Apple. That company went public at $14 a share which valued the company at over $850 million. And while that same day the stock traded up to $29 per share for a valuation of $1.77 billion, again, even inflation adjusted, it pales in comparison to the values that twenty-first century unicorns reached. Even though it was over thirty years later that Facebook went public at $104 billion, the dollar hasn’t lost its value enough over those three decades to make the comparison even remotely close.
These comparisons are among some of the most successful companies ever launched. And while we can come up with significant reasons to argue that there are other important differences between twentieth-century tech companies such as Apple and twenty-first century “tech” names such as Facebook, we’ll save that analysis for another article. What’s more concerning is the number of companies in the last fifteen years that have risen to the ranks of unicorn and have not proven that their businesses can ever be profitable (for example, Uber!) or which have just completely bombed altogether and had to close up shop. Continue Reading
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