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Big Tech companies bought into hot IPOs. Now they’re losing billions because of it

May 31, 2022, 5:14 PM UTC

As the tech market boomed over the past few years, firms bold enough to invest in startups reaped billions in paper rewards.

That bill, though, is coming due.

Just as institutional and retail investors lost their shirt on IPOs in recent months, so too have large-cap tech companies that took significant stakes in newly public outfits. The balance sheet losses will test the long-term appetite for one of the most aggressive investing tactics employed by Big Tech, which has become increasingly willing to wander into the venture capital realm.

In the first quarter alone, several big-name companies recorded huge unrealized losses on equity investments, casting a shadow over gains in their own operations. Another name could be added to the list Tuesday evening when Salesforce, an audacious late-stage and IPO investor, releases its quarterly earnings.

The highest-profile flop came at Uber, a company struggling to reach profitability on its own. Despite an unexpectedly strong quarter for revenue, the ride-hailing company posted a $5.9 billion loss for the period. The brutal showing followed the collapse of share prices at four companies that went public last year, each of which Uber owns a sizable stake in: Grab ($1.9 billion loss), Aurora ($1.7 billion), DiDi ($1.4 billion), and Zomato ($462 million).

Fierce rivals Amazon and Shopify also took substantial hits on recent investments—though the former is better positioned to weather market turbulence. 

Shopify saw the value of its equity holdings cut in half during the first quarter, dropping from $3.2 billion to $1.7 billion, after shares of Affirm and Global-E cratered. As a result, the Canadian e-commerce company reported a net quarterly loss of $1.5 billion on $1.2 billion in revenues.

Amazon, meanwhile, felt the sting of Rivian’s IPO stalling out, which caused the vast majority of the tech behemoth’s $8.2 billion in lost equities valuation for the quarter. Amazon recorded net quarterly losses of $3.8 billion on $116.4 billion in sales.

Alphabet took a smaller—but still consequential—first-quarter spanking from its equities investments, registering losses of about $1 billion.

Each company is expected to dig a deeper hole in the current quarter, which has been similarly unkind to recent IPOs. Rivian has tumbled another 37% since the beginning of April, Affirm is off 36% during that time, and Grab is down 21%.

(Most Big Tech firms avoid the treacherous IPO terrain, opting instead to seek safer shelter in government-backed securities, money-market funds, and corporate debt. That group includes Apple, Microsoft, and Tesla.)

For now, the most ambitious corporate investors aren’t taking too much flak from Wall Street. 

On recent earnings calls, analysts rarely asked questions about equities performance, focusing instead on fundamentals like consumer demand and logistics costs. While shares in the highest-profile tech investors are all down at least 20% year to date, the declines appear tied much more to operating challenges.

The reluctance to punish aggressive tech investors isn’t necessarily a surprise. For now, the losses remain largely on paper, with the opportunity to rebound long term (two exceptions: Salesforce shedding its last stake in cloud-computing firm Snowflake and Ford dumping 15 million shares of Rivian). Any investment fallout also offers the opportunity for a generous tax write-off.

Still, the anemic returns will certainly cool the already-icy IPO market, making it harder for public-ready companies to find high-profile investors. And if share prices don’t rebound in the medium term, Wall Street will stay patient with corporate investors for only so long.

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Jacob Carpenter

NEWSWORTHY

For the greater good. Qualcomm CEO Cristiano Amon floated the possibility of chip companies joining together to buy Arm, whose semiconductor designs serve as the backbone of chips produced by firms across the globe, the Financial Times reported Tuesday. In an interview, Amon said Qualcomm and other chip companies have a vested interest in keeping Arm as independent as possible, a position that has helped facilitate the rapid growth of the semiconductor industry. Arm owner SoftBank plans to take the company public after regulators in the U.S. and Europe, citing antitrust concerns, essentially killed Nvidia’s planned $40 billion acquisition.

A healthier supply. Foxconn executives suggested Tuesday that their supply-chain issues could improve in the second half of the year, easing the burden on the world’s largest contract electronics manufacturer, Reuters reported. Foxconn chairman Liu Young-way said the company, best known as Apple’s top supplier, is “quite confident in the stability of our supply chain” headed into the back side of 2022. The sunnier outlook follows the Chinese government’s decision to begin this week reopening parts of Shanghai, which has been under strict lockdown for several weeks.

Back in business? U.S.-listed Chinese tech stocks jumped in midday trading Tuesday, as the Chinese government began easing lockdowns and economic reports hinted at an economic bounce back in the Asian nation, Bloomberg reported. The Nasdaq Golden Dragon China Index rose 4% Tuesday, led by gains from e-commerce giant Alibaba, while online retailer JD.com was up 5%. The index is down 22% year to date amid fallout from the weeks-long COVID restrictions and slow economic growth in China.

Waxing and waning. The value of Luna 2.0, the replacement token issued after the $60 billion collapse of the Luna cryptocurrency earlier this month, bounced around Tuesday following its debut over the weekend. Luna 2.0’s price registered at about $9.25 as of Tuesday afternoon, still down significantly from its $17.80 debut Saturday but better than its low of roughly $4 during the weekend. The boost came after Binance listed the new token Tuesday morning, placing it in an “innovation zone” designed for higher-risk cryptocurrencies.

FOOD FOR THOUGHT

Anything but a dud. The world’s two most valuable private startups, TikTok owner ByteDance and Elon Musk venture SpaceX, are decently well-known names among casual investors. Members of that group, however, probably haven't heard much about the third-most valuable startup—unless they have a teenager at home. As Fortune’s Yvonne Lau writes, major investors are stampeding down the runway to invest in Shein, a Gen Z–focused Chinese fashion company that merges big data and rapid manufacturing to quickly produce trendy clothes at bargain prices. The outfit (pun very much intended) has reached a valuation of $100 billion, blowing past rivals H&M and Zara parent Inditex, though the social justice crowd frets about the company’s environmental impact and labor practices. 

From the article:

In previous generations, “fast fashion” retailers like Zara and H&M attracted the ire of fashion houses and environmentalists by hawking runway styles for prices so low the clothes are essentially disposable, easily cast off when the next hot trend comes along—ones nobody would wear every day. 

Now Shein, a 12-year-old online retailer based in Nanjing, China, is giving fast-fashion titans a taste of their own medicine, using real-time data, social buzz, and an extensive network of factories to produce look-alike designs at an even faster pace and for even lower prices.

IN CASE YOU MISSED IT

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SpaceX will join Tesla in accepting Dogecoin “soon,” Musk says, by Erin Prater

Coinbase “tremendously overvalued” as fee feast set to end, warns short-selling legend Jim Chanos, by Christiaan Hetzner

What happens when a car company with a checkered record on the environment hires a climate scientist, by Bernhard Warner

In-game loot boxes come under fire from European consumer groups, who are calling for “serious regulatory oversight,” by David Meyer

Crypto exchange snaps up Eurovision winners’ trophy for $900,000—with the proceeds going toward Ukrainian drones, by Chloe Taylor

BEFORE YOU GO

Back to Old Glory. We’re (maybe) No. 1! An American-made system once again reigns supreme in the top 500 rankings of the world’s most powerful public supercomputers, supplanting a Japanese product that held the lead spot for two years, The Register reported Monday. The Oak Ridge National Laboratory’s new Frontier supercomputer, powered by AMD processors and designed to help foster new discoveries in technology and medicine, scored peak performance of 1.1 exaflops, blowing past Japan’s 0.442 exaflop Fugaku system. But don’t get too excited. China purportedly owns two systems that would top the rankings if they were made available for benchmarking. The battle for supercomputer supremacy marches on.

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