Current Events,  Mile High View

Beware!! The Unicorns Are Coming!

That’s right, the Unicorns are coming. As an article in The Economist[1]pointed out, we use a lot of animal names: bull, bear, dog, hawk, dove, lion, and – in the last few years – unicorn. Unicorns are private companies that are valued at $1 billion or more. Lyft recently came public valued at a $16 billion market cap. Uber has filed and more will follow: Airbnb, We Work, Pinterest, Slack, and a host of Chinese unicorns.

I live in Seattle and remember when Microsoft came public. It was a small startup and already profitable, but nothing close to the size of a unicorn. Starbucks had just begun to expand outside the Seattle area by putting in stores in Portland. It, too, was profitable, but far from worth $1 billion before coming public. Investors hoped to buy into these young companies and benefit from their growth.

What has changed? In the new world of investing, the term being used is BLITZSCALING. Blitzscaling describes a “winner take all” disruptive company. Their new business model revolutionizes the industry and makes a high-speed market grab. Lyft and Uber are examples; they are the two largest taxi companies in the world, and they do not own a single taxi. In Seattle, they say it takes a taxicab driver about 4 years to get to know enough of the city and surrounding areas to be efficient. A Lyft or Uber driver becomes efficient in 4 minutes. Likewise, Airbnb is the largest hotel chain in the world, owns not a single hotel room, and was estimated by Forbes to be worth $38 billion in 2018.[2]

Why this change? First the internet has allowed for information to be shared and connections to be made at incredibly high speeds. Second, interest rates are low so investors have searched to better returns. Third, there has been a high success with Google, Facebook, Alibaba, and Tencent – all companies that developed huge markets and expanded very fast.

It took Microsoft 14 years to go from zero revenues to $1 billion. It took eBay and Facebook 7 years to reach $1 billion. It took Zynga only 4 years.

The big, private money has been pouring into these “blitzscaling” companies.

I have huge concerns. Lyft has $2.1 billion in revenues and almost $1 billion in losses. What is the path to profitability? That is to say, what is the path for the company to reach profitability, not the private investors. Is the greatest and most rapid growth done? I have not read the prospectus or other documents filed. Lyft estimates the personal transportation market is $1.2 trillion[3] annually. I do not see the taxicab market anywhere near that size.

In total, these blitzscaling unicorns had $9 billion in losses last year and $47 billion over their short lifetimes. Growth is financed by one of three sources: earnings, borrowings, or issuing capital stock. To date there are no earnings; borrowing seems to be out of the question, so financing has to come from issuing stock. The last time we saw that was during the dot-com boom.

I am not saying these companies will end like many of the dot-coms, but I have serious concerns. I like Lyft and Uber. I use them. I hope they survive, but I have serious concerns about the unicorns in general.

Note: This is not an offer to buy or sell or any solicitation.


[1]“Tech Stars.” The Economist Magazine, April 20, 2019.

[2] “As a Rare Profitable Unicorn, Airbnb Appears To Be Worth At Least $38 Billion.” Forbes, May 11, 2018. https://www.forbes.com/sites/greatspeculations/2018/05/11/as-a-rare-profitable-unicorn-airbnb-appears-to-be-worth-at-least-38-billion/#731ea0332741

[3]“This Year’s Hottest IPO Recalls Bubbles of Yore.” Barron’s, April 29, 2019.

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