Finding the next Apple (AAPL): unicorns that can go stellar
12:57, 11 January 2022
Now that Apple has become the first US company to be valued at over $3trn (£2.2trn), you’d be forgiven for thinking that you’ve missed an opportunity when it comes to this classic unicorn success story.
Of course, opportunities such as investing in an Apple-like business that goes stellar from the start are so rare and only come along once in a lifetime. Or do they?
The patient Apple investor
Apple investors have had to be patient. The company initially went public in December, 1980 with an original share price of $22.
“This was five years after its 1976 founding, in line with the seven-year-average for unicorn status. Apple took 42 years to reach $1trn, then tripled to $3trn only four years later.
“That's quite a curve, but billion-dollar companies used to be rare too, so I think growth rates like that will not only continue to exist but become more common as time goes on,” says Tim Sylvester, founder and CEO of Integrated Roadways, a smart infrastructure technology provider.
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Chasing unicorns
You don’t have to go too niche to find the next unicorn. There are many benefits to having competitors and, if you try too hard to find a company that comes up with an original idea, you may ultimately never find what you are looking for.
Sylvester explains: “Nearly all businesses are a lightly disguised reinvention of the wheel, doing the same thing that's been done a million times by other companies, but with a handful of tweaks, adjustments to value propositions, and minor points of differentiation. And that's not only fine, but necessary. A common saying is that "you don't have a market if you don't have competitors.”
But that doesn’t mean you must invest in the next copycat business. A fine balance must be struck. Sylvester explains: “Apple was the first $1trn company because it wasn’t trying to copy an existing proven industry or business model, but Apple also didn't produce the first computer, physical interface, OS, tablet, music player, online media service, phone, or anything else they're renowned for.”
Take a bite from Apple
So, if the next unicorn can have competitors but must also not be an outright copycat – how would you go about finding such a company? Looking at Apple for inspiration is a good way to go about it.
Sylvester has identified five ways in which Apple made itself successful:
- It took existing, proven technologies and created products that are easy to digest
- It identified a total addressable market opportunity significantly larger than $1trn.
- It used products to open, access, and dominate the massive new market space
- It expanded that market opportunity into a thriving industry with numerous “fast followers” and other copycat competitors chasing its lightning
- It segmented its business as it grew to reach into related opportunities that were supported by its core competency but open doors into new, highly related markets
Understanding unicorns
Another way to identify a possible unicorn is that you do a bit of head-scratching when you first come across the business. While never actually filing for bankruptcy, Apple was on the verge of going bust in 1997 – hard to imagine, given its current success.
Some believe that it was close to hitting the wall because it was initially hard for investors to understand it. It was, however, saved at the last minute by a $150m injection from arch-rival, Microsoft (MSFT) and the rest, as they say, is history.
This may be the path of the next Apple-like unicorn. “The average investor probably won’t understand the company’s value at first glance – it may seem either impossible, inscrutable, or unnecessary and require the investor to go much deeper than a 15-minute pitch before they can wrap their mind around the brilliance that makes the company so deeply portentous.
“If the average investor can get it in 15 minutes, it’s either not innovative enough or it’s so far afield that it’s logistically impossible right now (like teleportation – easy to grasp, immensely valuable, realistically impossible for now),” says Sylvester.
A bumpy ride
Ultimately, if you’re keen on identifying or investing in unicorns – you’re probably in for a bumpy ride as investors try to understand the business and the business tries to establish itself.
There may be time when the unicorn will be on the verge of going bust. It’s something that’s bound to heighten anxiety levels, especially if you’ve put a lot of money into it. But imagine buying Apple shares when it first listed and how you’d be ‘sitting pretty’ now, more than 40 years on.
That’s not to say you should put your apples in one basket (we know it’s eggs but for the sake of this analysis, let’s go with it). There are, after all, lots of fake unicorns out there claiming to be the next best thing, giving themselves flashy, catch descriptions that go something like: the ‘Uber of crypto’ or ‘the Facebook of AI’.
Sylvester warns not to be caught out by investors propping up a known-bad investment for long enough to ‘make it someone else’s problem’. “If the business is a repackaging of an existing market offering at a head-scratching valuation for no clear reason, you’re asking for trouble,” he adds.
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