Tech companies lost $17 billion in the first quarter as equity investments take a hit
A Rivian Amazon electric delivery van navigates the street with the Hollywood sign in the background.
The sale of 2022 technologies has accelerated over the past two weeks, with first quarter earnings reports highlighting challenges such as inflation, supply chain shortages and the war in Ukraine.
For some tech leaders, the market slump has created a double whammy. As well as grappling with their own headwinds, they were among the most active investors in other companies during the protracted bull market, which hit a wall late last year.
Welcome to the pain of mark-to-market accounting.
Amazon, Uber, Alphabet and Shopify each posted losses of more than $1 billion on equity investments in the first quarter. Add reports from Snap, Qualcomm, Microsoft and Oracle and total losses among tech company holdings topped $17 billion for the first three months of the year.
Investments that once looked like a stroke of genius, especially when high-growth companies lined up for blockbuster IPOs, are now producing serious red ink. The Nasdaq fell 9.1% in the first quarter, its worst period in two years.
The second quarter is looking even worse, with a tech-focused index down 13% at Thursday’s close. Many recent drivers have lost more than half their value in a few months.
Companies use a variety of colorful terms to describe their investment markdowns. Some call them non-operating expenses or unrealized losses, while others use terms such as revaluation and change in fair value. Whatever language they use, tech companies are being reminded for the first time in over a decade that investing in their industry peers is risky business.
The latest losses came from Uber and Shopify, both of which released their first quarter results this week.
Uber said Wednesday that of its $5.9 billion in quarterly losses, $5.6 billion came from its stakes in Southeast Asian mobility and delivery company Grab, self-driving vehicle company Aurora and the Chinese ride-hailing giant Didi.
Uber originally acquired its stakes in Grab and Didi by selling its own regional operations to those respective companies. The deals looked lucrative for Uber as private valuations soared, but shares of Didi and Grab have plunged since listing in the United States last year.
Shopify posted a $1.6 billion loss on its investments on Thursday. Most of it comes from online lender Affirm, which also went public last year.
Shopify secured its stake in Affirm through a partnership forged in July 2020. Under the agreement, Affirm became the exclusive point-of-sale financing provider for Shop Pay, Shopify’s payment service, and Shopify secured warrants to purchase up to 20.3 million shares. in Affirm at a penny each.
Affirm is down more than 80% from its November high, leaving Shopify with a big loss for the quarter. But with Affirm trading at $27.02, Shopify is still well above its initial investment.
Amazon was the technology company hardest hit in the quarter by its investments. The online retailer revealed last week that it suffered a $7.6 billion loss on its stake in electric vehicle company Rivian.
Shares of Rivian have plunged nearly 50% in the first three months of 2022, following a smash debut in public markets in November. Amazon has invested more than $1.3 billion in Rivian as part of a strategic partnership with the EV company, which aims to produce 100,000 delivery vehicles by 2030.
A Rivian R1T electric pickup truck during the company’s IPO outside the Nasdaq MarketSite in New York on Wednesday, November 10, 2021.
Bing Guan | Bloomberg | Getty Images
Rivian’s downdraft coincided with a broader rotation in tech stocks late last year, spurred by rising inflation and the likelihood of higher interest rates. This trend accelerated this year, after Russia invaded Ukraine in February, oil prices soared again and the Federal Reserve began its rate hikes.
Last week, Alphabet posted a loss of $1.07 billion on its investments due to “market volatility”. Google’s parent company’s investment vehicles hold shares of UiPath, Freshworks, Lyft and Duolingo, which fell between 18% and 59% in the first quarter.
Qualcomm reported a $240 million loss on marketable securities, “primarily due to the change in fair value of some of our QSI marketable equity investments in early-stage and growth-stage companies.” QSI, or Qualcomm Strategic Investments, invests in startups in artificial intelligence, digital health, networking, and other fields.
“The fair values of these investments have been and may continue to be subject to increased volatility,” Qualcomm said.
Meanwhile, Snap said in late April it recorded a “$92 million unrealized investment loss that became public in the second half of 2021.”
While the biggest price drops from the Q1 collapse have been recorded, investors still need to hear from Salesforce, whose venture capital arm has been among the most active backers of pre-IPO companies in recent times. .
Over the past two fiscal years, Salesforce has disclosed combined investment gains of $3.38 billion. Salesforce is expected to release its first quarter results later this month, and investors will be watching closely whether the cloud software provider came out at the right time or is still holding the bag.
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