Publicly Born Unicorn

The Unicorns. The companies with billion dollar plus market capitalizations. Some emanate from venture capital financing and begin their publicly traded life with billon dollar valuations and others are publicly “born and bred.” I am speaking about the publicly born and bred unicorns; that were once small (or small cap) public companies and over time became enormous; in terms of both market capitalization as well as having reached what I call, “customer ubiquity.” Every public market investor dreams of finding a company that becomes a unicorn. Some examples include Amazon, Apple, Starbucks, Costco and Home Depot [not Google as it started public life as a unicorn]. While management is critical, as is the Company’s capital structure, business model and financial performance, there is one more absolutely necessary ingredient: A large TAM (total available market). Companies like Apple and Amazon with nearly trillion dollar market capitalizations and many others with multi-billion dollar market capitalizations, all require an enormous total available market. Minimally with customers in the U.S. and often North America. Eventually their customers are global. With the 2 aforementioned companies, they sell globally; as does Starbucks, Costco and Home Depot; each with the entire planet’s population as their customer or potential customer. None of the companies that become billion dollar or multi-billion dollar public companies can become or at least sustain, for a multi-year duration, such valuations, without customers everywhere. Take Nvidia as another example: It started public life during 1998 and half of 1999 with a sub-one billion dollar valuation. Today it has a $158 billion [billion with a “B”] market value. How? It started selling its graphics processors in North America (mainly in the U.S.) for computers. Today, 20 years of public life later, it sells its graphics chips for many different applications and devices, to/for customers across the entire planet. What really drove the gravity defying revenue growth, scintillating earnings and made it a unicorn 158 times over? Gaming and mobile phones. Gamers and mobile phone users are everywhere. It reached customer ubiquity. Because Nvidia has a total available market that consists of the whole planet, with great execution the company’s market, market share and value surged. Find a company with capable management, a healthy capital structure, sensible business model, strong initial financial performance, a unique product/service and a global total available market; and you probably found a future unicorn.

David N. Baker

By |2018-06-13T03:34:49+00:00June 12th, 2018|blog|0 Comments