Unicorns typically are valued on the basis of number of users. While they are not yet monetizing those users, their growth and engagement metrics are expected to be off the charts. As there are no revenues (or profits) the $billion valuation hinges on a nominal value of $/user. That figure is based on comparable companies (e.g. Facebook) which do monetize their users.

Since the unicorn’s capitalization/user defines its valuation, which company should be considered comparable? Unfortunately they range widely. There are many alternatives. The graph below shows a few Market Cap/Mobile User rates ranging from $45 for Yelp to $747 for Alibaba.

Screen Shot 2015-05-15 at 5-15-2.47.16 PM


Note that I’ve also added companies which may not be considered as unicorn comparables because they are not usually valued on a per-user basis. Apple, Microsoft, Google and Amazon are priced by product sales, typically. However, most of them operate and self-define as service organizations. Microsoft has been “monetizing users” for decades using a recurring revenue model. It has a “SaaS” business logic for most of its revenues. Google[1] likewise. Amazon reports its active users every quarter and obviously is measuring itself by that metric.

Apple[2] is the least likely to be seen as a company whose value is a function of user base. Nonetheless it behaves entirely on that basis. The company’s entire strategy depends on satisfying its customers and building its brand which can only have one outcome: loyalty and repeat purchases. The services and software they offer can be seen as supporting that brand loyalty which is converted to profit through an above-average selling price.

Being mature of business model therefore does not exclude a company from being valued like all the kids are these days.

So, if we do look at the value/user metric we might as well look at the revenues, operating profit and growth data.

Screen Shot 2015-05-15 at 5-15-3.09.43 PM

Unicorns are therefore characterized as having negligible revenue or profit but significant growth. The growth of Alibaba, Tencent, LinkedIn, Facebook, Twitter, Snapchat and Yelp should be seen in the 50% y/y range. The growth of mature companies is more modest: Microsoft (<10%), Google (12%), Amazon (15%).

Apple is an exception with recent growth in the 30% to 40% range.

Markets therefore value internet services at multiples of 10 to 20x revenues and 50x at least in terms of operating income. These multiples don’t yet apply to Unicorns, since they typically don’t have revenues, but the expectations are typically in this range once they do.

Mature product companies are valued more cheaply with 2x revenues for Amazon (a retailer with zero margins) up to Google with near 6x. Apple and Microsoft are in the middle at 4x revenues.

Mature company value as a function of income is also much lower ranking from about 12 for Apple to 22 for Google. Amazon’s multiple is astronomical only because it has almost zero income.

Finally, when considering growth and income together[3] both emerging services and product companies are priced between 1.3 and 2.5. The outliers are Amazon due to its lack of income (PETG of 358) and Apple with its enormous income (PETG of 0.4).

This last ratio has had a “rule of thumb” of 1.0 being the “fair value” with <1 being seen as under-valued for growth and >1 being over-valued. Alternatively it can be seen as either pessimism about sustainability or optimism, respectively.

Clearly Unicorn Mania (or Unicornia) is a reflection of an optimism around new market disruptions in many industries where software has suddenly become ingestible.  Old-school software companies are seen as less exciting in this context. If only they could take part in these new market creating opportunities then maybe they too could benefit from this optimism.

Now that would be crazy talk.

  1. Google users are estimated at 2 billion active Android/GMS devices []
  2. The assumption here is that Apple has 520 million active users which is based on iOS devices in use estimates []
  3. When seen into the future this is the PEG ratio or Share Price/Earnings/Growth. When seen into the past, this is the PETG or Share Price/Earnings/Trailing Growth []
  • Luis Alejandro Masanti

    Is there any measurement in which Apple is ‘as the others’?

    It is crazy to think that the only company that normally defies ‘common sense’ is the most worthwhile company.
    Is ‘common sense’ wrong or are Apple’s high profits’ wrong?

    Oh, yes, the press told me that Apple’s success is unsustainable!

    • hannahjs

      The Press take turns being Chicken Little and the Boy who cried Wolf.

  • Speaking in term of services could be interesting see Apple data trimmed by active itunes users more than active iOS users.

    • Sam

      It would be interesting. But… App Store on the Mac and on PC is part of iTunes on those platforms. Wouldn’t every iOS user be an iTunes user? Since they use the same credit cards.

      As much as we would like more info to analyze Apple, they don’t want to give any more info to their competitors.

      • melci

        Horace, 450 MAU sounds way too low for Apple’s active users.

        There were 875 million active iTunes/App Store users 12 months ago and Apple has sold well over a quarter of a Billion (277 million) iOS devices since then. Apple has only sold around 200 million non-iOS iPods in the last 14 years, so surely a very significant percentage of that 875 million would be iOS users.

        Apple has sold over half a billion (517 million) iOS devices in the last two years alone and back in November had sold over 1 Billion iOS devices in total. Considering the high resale value and premium construction of Apple devices, they have a pretty long tail of usability as hand-me-downs and on-sells.

        Are you really suggesting that only the last 2 year’s worth of iOS devices are still active?

      • As meici says Apple has sold 200 million iPods so I don’t think many of the 875 million iTunes account are PC users. Furthermore many users use the same iTunes account across multiple iOS devices to gain family sharing capabilities.
        I think the number of iOS devices in use is underestimated and that iTunes users is a better proxy.

  • Sacto_Joe

    Great post, Horace! Three in a row!
    So as my wife so beautifully put it, Amazon is still being seen as a unicorn by many investors.

    • jinglesthula

      A company’s ability to grow has nothing to do with its size. It has everything to do with its resources, values, and processes.

      Typically, large companies stop growing because they abandon the RVP of their youth. Apple is the worlds largest startup, and continues to grow.

      To say that any company could not possibly grow bigger is to state categorically that all needs have been met in the most effective, efficient, and positive manner for all people. We’re not quite there yet.

      As to why companies abandon their startup-days RVP as they grow larger, well, there’s a whole podcast for that 😉

  • Roo_44

    “The company’s entire strategy depends on satisfying its customers and building its brand which can only have one outcome: loyalty and repeat purchases. ”

    It appears to be working, at least in China:

  • loquitur

    Netflix also would seem to be in this category, with market cap/user ~600ish right now.

  • melci

    Horace, didn’t Google indicate at Google I/O last year that they only had 1 Billion active Android users – not 2 billion?

    • melci

      We now know that 4 months later Google announced that there were only 1.4 Billion active Android devices, but perhaps more importantly only 1 Billion active Google Play users.

      And of course, we also now know that Apple has an active installed base of over 1 Billion Apple devices (iPhones, iPads, iPod Touches, Macs and AppleTVs).

      I believe Horace estimated Apple would cross the 1 Billion mark for active iTunes/App Store users back in November 2014.

      Horace, would you happen to have a new estimate for that figure at this point, now more than 12 months later?

  • Amruta Krishna

    When considering the $/user, it reminds me of the eyeballs in dot-com era. Is there any real correlation between the ads viewed and actions taken by the users.

    For example, major percentage of Facebook/Twitter revenues comes from ads and as a twitter user I’ve never taken an action based on the ads that I’ve been subjected to between the tweets.

    Is ad blocker really a threat to their business? Will there revenues be declined non-linearly due to ad blocker?

    • melci

      If Apple decided to introduce a default Ad-blocker in Safari, rather than just leaving it up to users to opt-in with one of the third party options, Apple could kill a major portion of Google’s Mobile revenue stream – web page ads.

      Nanigans reports that iOS users generate a mind-boggling 1,790% greater Advertising Return on Investment (ROI) for retailers than Android users.

      However, it’s worse than that as It’s not just that Android monetizes worse than iOS — it actually offers negative return on investment. In other words, while advertising on iOS brings retailers 162 percent more cash than they spend on the ads, advertising on Android returns 10 percent less than the cost of the ads.

      The other source of Google’s Mobile revenue is Search and Apple could kill 75% of Google’s mobile search revenue by simply ending their default search engine deal in Safari.