Tech companies racked up over $17 billion in losses on equity investments in the first quarter

The tech sell-off of 2022 accelerated in the past couple weeks, with first-quarter earnings reports highlighting challenges like inflation, supply chain shortages and the war in Ukraine.

For some tech leaders, the market swoon has created a double whammy. In addition to grappling 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, Uber, Alphabet and Shopify each posted billion-dollar-plus losses on equity investments in the first quarter. Add in reports from Snap, Qualcomm, Microsoft and Oracle and total losses among tech companies’ equity holdings topped $17 billion for the first three months of the year.

Investments that once looked like a stroke of genius, particularly as high-growth companies lined up for blockbuster IPOs, are now producing serious red ink. The Nasdaq tumbled 9.1% in the first quarter, its worst period in two years.

The second quarter is looking even worse, with the tech-heavy index down 13% as of Thursday’s close. Many recent high fliers lost more than half their value in a matter of 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 phrases like 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, which both reported 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, autonomous vehicle company Aurora and Chinese ride-hailing giant Didi.

Uber originally acquired its stakes in Grab and Didi by selling its own regional businesses to those respective companies. The deals looked to be lucrative for Uber as private valuations were soaring, but shares of Didi and Grab have plunged since they were listed in the U.S. last year.

Shopify on Thursday recorded a $1.6 billion loss on its investments. Most of that comes from online lender Affirm, which also went public last year.

Shopify got its stake in Affirm through a partnership forged in July 2020. Under the agreement, Affirm became the exclusive provider of point-of-sale financing for Shop Pay, Shopify’s checkout service, and Shopify was granted warrants to buy up to 20.3 million shares in Affirm at a penny each.

Affirm is down more than 80% from its high in November, leaving Shopify with a big loss for the quarter. But with Affirm trading at $27.02, Shopify is still substantially up on its original investment.

Amazon was the tech company hit the hardest in the quarter from its investments. The e-retailer disclosed last week that it took a $7.6 billion loss on its stake in electric vehicle company Rivian.

Shares of Rivian plunged nearly 50% in the first three months of 2022, after a splashy debut on the public markets in November. Amazon invested more than $1.3 billion into Rivian as part of a strategic partnership with the EV company, which aims to produce 100,000 delivery vehicles by 2030.

The downdraft in Rivian coincided with a broader rotation out of tech stocks at the end of last year, spurred by rising inflation and the likelihood of higher interest rates. That trend accelerated this year, after Russia invaded Ukraine in February, oil prices spiked further and the Federal Reserve began its rate hikes.

Last week, Alphabet posted a $1.07 billion loss on its investments due to “market volatility.” The Google parent company’s investment vehicles own shares of UiPath, Freshworks, Lyft and Duolingo, which tumbled between 18% and 59% in the first quarter.

Qualcomm reported a $240 million loss on marketable securities, “primarily driven by the change in fair value of certain of our QSI marketable equity investments in early or growth stage companies.” QSI, or Qualcomm Strategic Investments, puts money into start-ups in artificial intelligence, digital health, networking and other areas.

“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 that it recorded a $92 million “unrealized loss on investment that became public in H2 2021.”

While the biggest markdowns from the first-quarter meltdown have been recorded, investors still have to hear from Salesforce, whose venture arm has been among the most active backers of pre-IPO companies of late.

In the past two fiscal years, Salesforce has disclosed combined investment gains of $3.38 billion. Salesforce is scheduled to report first-quarter results later this month, and investors will be looking closely to see whether the cloud software vendor exited at the right time or is still holding the bag.

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