Tech companies lost $ 17 billion in the first quarter from equity investments

A Rivian Amazon electric van drives down the street with the Hollywood sign in the background.

Amazon

The tech clearance sale of 2022 accelerated in 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 swoon has created a double whammy. In addition to struggling with their own operating headwinds, they were among the most active investors in other companies during the extended bull market, which hit a wall late last year.

Welcome to the pain of mark-to-market accounting.

Amazon, Above, alphabet Other Shopify each recorded billions of dollars in losses on equity investments in the first quarter. Add reports from Hurried, Qualcomm, Microsoft Other Oracle and total losses among technology companies’ equity holdings exceeded $ 17 billion in the first three months of the year.

Investments that once seemed like a stroke of genius, particularly as fast-growing companies lined up for successful IPO, are now producing serious red ink. The Nasdaq tumbled 9.1% in the first quarter, the worst period in two years.

The second quarter looks even worse, with the tech index down 13% as of Thursday’s close. Many recent high flyers have lost more than half of their value within a few months.

Companies use a variety of colorful terms to describe their downturn in investments. Some call them non-operating expenses or unrealized losses, while others use phrases such as revaluation and fair value change. Whatever language they use, tech companies are reminded for the first time in over a decade that investing in their industry peers is a risky business.

The latest leaks came from Uber and Shopify, both of which reported their first quarter results this week.

Above said Wednesday that of its $ 5.9 billion in quarterly losses, $ 5.6 billion came from its holdings in the Southeast Asian mobility and delivery company digthe autonomous vehicle company Aurora and the Chinese ride-hailing giant didi.

Uber originally acquired its stakes in Grab and Didi by selling their regional businesses to their respective companies. The deals appeared to be profitable for Uber as private valuations were soaring, but shares of Didi and Grab have plummeted since they went public in the US last year.

Shopify Thursday registered a $ 1.6 billion loss on its investments. Most of this comes from online lenders to assertalso listed on the stock exchange last year.

Shopify got its stake in Affirm through a Association counterfeit in July 2020. Under the agreement, Affirm became the exclusive point-of-sale finance provider for Shop Pay, Shopify’s payment service, and Shopify received warrants to purchase up to 20.3 million Affirm shares at one cent 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 still basically lives up to its original investment.

Amazon was the tech company hardest hit by its investments in the quarter. The e-reseller disclosed last week it suffered a $ 7.6 billion loss on its stake in the electric vehicle company Riviano.

Rivian’s stock plummeted nearly 50% in the first three months of 2022 thereafter a sensational debut on public markets in November. Amazon has invested more than $ 1.3 billion in Rivian as part of a strategic partnership with the electric vehicle company, which aims to produce 100,000 delivery vehicles by 2030.

A Rivian R1T electric pickup truck during the company’s IPO outside Nasdaq MarketSite in New York on Wednesday, November 10, 2021.

Bing Guan | Bloomberg | Getty Images

Rivian’s downdraft coincided with a larger 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 rose further and the Federal Reserve began its rate hikes.

Last week, alphabet published a $ 1.07 billion loss on its investments due to “market volatility”. Google’s parent company’s investment vehicles own shares of UiPath, Freshworks, lyft Other Duolingowhich collapsed between 18% and 59% in the first quarter.

Qualcomm reported a $ 240 million loss on marketable securities, “primarily caused by the change in fair value of some of our QSI marketable equity investments in early stage or growth stage companies”. QSI, or Qualcomm Strategic Investments, invests in startups in artificial intelligence, digital health, networking and other areas.

“The fair values ​​of these investments have been and may continue to be subject to greater volatility,” Qualcomm said.

Meanwhile, Snap said in late April that it recorded an “unrealized investment loss of $ 92 million that went public in the second half of 2021”.

While the biggest lows of the first quarter meltdown were recorded, investors have yet to listen sales forcewhose risk arm was among the most active supporters of pre-IPO companies in recent times.

For the past two fiscal years, Salesforce has revealed total investment earnings of $ 3.38 billion. Salesforce will report first quarter results later this month and investors will be watching closely to see if the cloud software provider came out at the right time or is still holding the stock market.

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