This article does a lot of looking back. And it's easy to say all of this was obvious in hindsight.
- In every annual report, companies state their future intentions.
- It's our job to assign a likelihood to those intentions. And figure out one, if they are realistic. And two, if they are realistic, why this company — and not its competitors — is in the best position to execute those intentions.
The Light Bulb Moment
I first heard the term "Apex Mountain" from the Rewatchables, a Ringer podcast. The podcast does deep dives on movies they deem "rewatchable."
You know, those movies that suck you in when you're flipping through channels.
They break up the podcast into different categories. Like most rewatchable scenes, what's aged the best, and is this an actor or director's Apex Mountain? Meaning, is this their best work, the peak of their powers?
For example: Is Vince Vaughn's Apex Mountain Old School or Wedding Crashers? I lean Wedding Crashers, but many would say Old School or even Swingers.
It got me thinking...
How could we apply the Apex Mountain framework to investing?
Whether young or mature, most companies probably had one product that got them to where they are today. But will that same product lead its next leg up in market cap? Will it remain their Apex Mountain?
Facebook's Near Miss
Facebook's first product was desktop-based. It was a simple page; nothing fancy.
People forget, but they didn't pivot to mobile until right before their 2012 IPO.
As Vox correctly notes. They almost missed it.
From the article:
Facebook had mobile apps for the iPhones and Android phones, but they were built using the technology known as HTML5 — a relatively new software language good for building web pages but not for building apps native to IOS and Android devices. Facebook had universalized it's code, using the same technology for all of its services instead of building apps specifically designed for each operating system. As a result, the apps were buggy, slow, and prone to crashes.
In other words, its mobile app sucked.
But in early 2012, Zuckerberg switched their entire strategy from desktop to mobile. As a result, everything Facebook did going forward was mobile-first.
And although they had a mobile app at the time of their IPO, they derived zero revenue.
From their 2012 S-1 (p.46). Emphasis mine:
We do not currently display ads to users who access Facebook via mobile apps and our mobile websites. To the extent that increasing usage of Facebook through mobile apps or our mobile website substitutes for the use of Facebook through personal computers where we do show ads, the number of ads we deliver to users and our revenue may be negatively affected unless and until we include ads or sponsored stories on our mobile apps and mobile website.
We believe that people around the world will continue to increase their use of Facebook from mobile devices, and that some of this mobile usage has been and will continue to be a substitute for use of Facebook through personal computers.
Did you catch the last sentence?☝ They believed, back in 2012, that people would increasingly access Facebook on mobile devices instead of desktops.
So let’s follow the breadcrumbs… Advertisers follow eyeballs👉 Eyeballs are moving from desktop to mobile👉 . Currently, all of Facebook’s revenue is from desktop ads👉 If Facebook believes in the shift to mobile, they’re probably going to build an ad product for mobile, right?
So, if you were a potential investor in Facebook and read their S-1, you could say two things.
- At the time of its IPO, its biggest revenue-generating product was desktop ads.
- They believe mobile will increasingly steal eyeballs from its desktop product.
Knowing these two things, some sensible follow-up questions could be:
- If they improve their mobile app, would consumers prefer it over the desktop?
- Could mobile potentially drive larger ad revenues than desktop?
- Could it be their NEW Apex Mountain?
Now, it’s easy to say: “It was right there; how could anyone not see the shift to mobile?”
After all, there were no numbers that proved the shift to mobile would work. Those came later.
But the clues were there.
Will crypto be Facebook's third apex?
We can say this about Facebook:
- Its desktop product brought them from a college dorm room through their IPO.
- And their pivot to mobile provided the fuel that made them a top ten company.
What will their experiment with crypto turn out to be? Its new Apex Mountain; the burst they need to break $1 trillion in market cap? Or a complete bust?
We don't have the numbers to say one way or the other. But what's their ceiling if crypto turns out to be bigger than mobile?
Just something to chew on.
Asking Better Questions
The point in re-visiting history is to help us form better questions that we can apply today.
- This company says they are doing this. How realistic are its intentions?
- What is the macro environment they are operating in?
- What are the barriers preventing change? What is the likelihood they are overcome?
- If they are overcome, who will benefit and capture the value that was previously locked?
- What is the "job-to-be-done" this company is solving for? What other companies are trying to solve this problem?
- If the new environment comes to pass, will this company be uniquely positioned to be a market leader and create a hard-to-replicate product or service? Whether through proprietary technology, network effects, economies of scale, branding, or some combination?
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