Artificial intelligence has been a big boon for San Francisco real estate. But not enough of one to make up for the broader struggle across the market.
The vacancy rate for San Francisco office space reached a fresh record of 34.5% in the second quarter, according to a report Monday from commercial real estate firm Cushman & Wakefield. That’s up from 33.9% in the first quarter, 28.1% in the same period a year ago and 5% before the pandemic.
Meanwhile, the average asking rent dropped to $68.27 per square foot in the quarter, the lowest since late 2015, down from $72.90 a year earlier and a peak of $84.70 in 2020.
San Francisco is reeling from the twin challenges of bringing people back to the office after the Covid pandemic and a slowdown in the tech market that’s led to mass job cuts across the industry. Tech companies have laid off more than 530,000 employees since the start of 2022, according to the website Layoffs.fyi, with major downsizing at Alphabet, Meta, Amazon, Tesla, Microsoft and Salesforce.
Softening the blow of late has been the soaring popularity of generative AI and the decision by fast-growing startups to open large offices in San Francisco.
OpenAI, the market leader with a private valuation that’s topped $80 billion, announced in October that it was leasing about 500,000 square feet of space in the Mission Bay neighborhood, the biggest office lease in the city since 2018. Robert Sammons, senior research director at Cushman & Wakefield, said OpenAI is continuing to look for more space in the city.
Also last year, OpenAI rival Anthropic subleased 230,000 square feet at Slack’s headquarters. And in May of this year, Scale AI signed a lease for a reported 170,000 to 180,000 square feet of space in Airbnb’s office building.
“San Francisco is certainly the center of AI, but AI is not going to save the San Francisco commercial real estate market,” Sammons said. “It will help.”
While richly capitalized AI startups are signing large leases for new space, the bigger trend is that tech companies, law offices and consulting firms are looking to reduce their footprint when existing leases come up, Sammons said, reflecting the widespread move to hybrid work.
In many cases, companies are looking to relocate to higher quality space in more desirable parts of the city, because prices have come down and employers need to be near restaurants and shops to get staffers to come back, Sammons added.
“The best quality trophy space continues to perform well, because tenants want to be in the best locations with the best amenities around them,” Sammons said.
Some of the city’s top employers, including Salesforce, Uber, Visa and Wells Fargo, have brought employees back to offices for part of the week. That’s helped in the financial district, where the vacancy rate is still 34.2% on the north side and 32.7% on the south side at the end of the quarter. In SoMa, which historically was a popular area for venture-backed startups, the vacancy rate is almost 50%.
SoMa is further away from mass transit options and has also been hurt by large retail departures. Vacant office space across San Francisco for the quarter totaled 29.6 million square feet, Cushman & Wakefield said.
The firm said in its report that there are positive signs in the market, with absorption poised to improve in the second half and office job numbers stabilizing following a steep drop-off. But Sammons said it looks like there’s more room for rents to fall and for vacancies to rise. Uncertainty surrounding the upcoming presidential election may be a factor delaying new leases, he said.
“Sometimes tenants postpone making decisions when there are major elections,” he said.
Jim Cramer’s daily rapid fire looks at stocks in the news outside the CNBC Investing Club portfolio. T-Mobile : The wireless carrier announced plans to pay $4.4 billion to buy most of U.S. Cellular . “Who am I to doubt [T-Mobile CEO] Mike Sievert? They got some growth. So stock going higher,” Jim Cramer said Tuesday. T-Mobile was up just under 1%. U.S. Cellular rose more than 1%. Viking Holdings : The cruise line operator’s stock saw lots of analyst initiations. The company went public on May 1. “They don’t want kids, and they don’t want gambling,” and that’s the appeal of Viking, Cramer said. Airbnb : Shares of the short-term rental company were upgraded to a buy-equivalent outperform rating at Wedbush. “I felt that the quarter was excellent. The app is really good. I disagreed with the market. It’s a hard thing to do. Wedbush is basically giving you the bull case,” Cramer said. Shares dropped 7% after its earnings report on May 9 and were still down $10 since the Friday’s close. Huntington Bancshares : The regional bank stock was upgraded to a buy-equivalent overweight rating at JPMorgan. “I thought that the upgrade made very little sense. But I recognize that Huntington Bancshares is in a good state,” Cramer said. Texas Instruments : CNBC reported that activist investor group Elliott Management has taken a $2.5 billion stake in the chipmaker. Cramer said Texas Instruments didn’t make the right moves with customers and shareholders and that’s why Elliott moved in.
Responding to angry customers is one of the hardest parts of her job, Natasha said.
Finding the right words, conveying the appropriate level of contrition — especially when the hotel isn’t at fault (read: rain complaints) — is a tedious and time-consuming process, said the director of a five-star resort, who asked that CNBC not use her real name to protect the resort’s name.
But now she has a secret weapon: generative AI.
Natasha pastes a traveler’s complaint into ChatGPT and asks the chatbot to write a response.
She said a task that would easily take her an hour is done “in two seconds.”
For all its faults, ChatGPT “does a pretty good job” responding to customer complaints, Natasha said.
“One [response] was much better than what I would have done,” she said. But “it has to be checked …you have to read through it.”
Responses tend to be “schmaltzy” and adjective-laden, she said. Still, they “hit the points of like ‘We’re sorry, we wish we could have done something, we’ll do better’ kind of thing.”
They also address every complaint mentioned by a traveler.
“It’s hard to write these letters; you have to go through line-by-line,” she said. “You wouldn’t be doing the person justice, if you didn’t respond to everything on the list … the AI does this really well.”
But best of all, artificial intelligence isn’t defensive like humans, said Natasha.
“The AI takes all the emotion out of it. Maybe the people were ass—–,” she said. “It doesn’t care.”
Responding to negative online reviews is even harder, said Natasha, since they are so public.
Plus, research shows that companies that don’t respond to online reviews — even positive ones — can harm their brand’s reputation.
In a ranking of U.S. hotel chains by their “online reputations,” the tech company SOCi found that a driving factor for low scores was “ghosting” — that is, failure to respond to traveler reviews.
The need to constantly monitor and respond to online feedback is partly why using generative AI for “reputational management” is worth an estimated $1.3 billion to the travel industry, according to a 2023 report published by the travel market research company Skift.
Not only can large language models track sites where travel reviews appear — from TripAdvisor to Yelp to Reddit — they can also help companies “respond to reviews, especially negative ones,” the report, titled “Generative AI’s Impact on Travel,” states.
Some 45% of hotels use reputation or review management software already, it said.
A screenshot of a discussion about using ChatGPT to write reviews on Airhosts Forum, a website for Airbnb hosts.
CNBC
But short-term rental owners use AI for these purposes too,said Luca Zambello, the CEO of the short-term rental property management platform Jurny.
“The short-term rental/Airbnb industry has been early adopters,” he said. “Within the next five years, I would say it is probably going to be adopted by the vast majority of the industry.”
He said responding to reviews is time-consuming, which is one of the reasons his company provides this service.
“The majority of our users absolutely love it,” he said. “It is really a no-brainer for companies once they see how good it is.”
Using AI to write penitent responses is a taboo topic in the travel industry, which prides itself on personal service. Conventional wisdom, too, has long held that apologies must “come from the heart.”
I want people to think that I am sitting there toiling away over their letter.
Natasha
Director of a five-star resort
When asked if she wants travelers to know she uses AI to respond to negative emails and reviews, Natasha said, “I sure do not. I want people to think that I am sitting there toiling away over their letter.”
One company that acknowledges using AI to deal with customer complaints is the travel booking platform Voyagu, which stores past customer communications to help travel advisors with future interactions, a company representative said.
“Travel advisors always reply to customers themselves, but Voyagu’s AI system tracks all communication — both written and verbal — and suggests a better way to respond,” she said.
Brad Birnbaum, CEO of the AI-powered customer service company Kustomer, said technology of this sort is being used “not just within hospitality, but really all forms of customer support.”
His company, which counts Priceline, Hopper and AvantStay as customers, uses AI to help customer service agents sound more professional, he said.
“We will take text that is really rough and convert it to elegant text, to empathetic text,” he said.
Birnbaum said customers likely don’t know that their interactions with agents are either generated or improved by AI.
“And I don’t think they would care,” he said. “As a matter of fact, I think they probably welcome an agent system because they’re going to get a better response faster.”
Michael Friedman, CEO of the family-run vacation rental company Simple Life Hospitality, said his company does not use AI to respond to customers.
“We never write an email with AI,” he said. ‘There is still a personal element in the ‘tone of voice’ that I believe AI is missing. … I believe there is nothing better than the human touch.”
Wanping Aw, managing director of the Japanese travel agency Tokudaw, said she had never thought to use AI to respond to customer complaints. But after learning that other travel companies are, she decided to test ChatGPT with a real-life problem she recently faced.
She typed: “Our guests are travelling to Mt Fuji. Their bus engine just started smoking. They are scared and anxious to know what is going to happen to their itinerary. What should we do?”
The result? “PRETTY AMAZING!” she told CNBC by email. “ChatGPT suggested exactly what we did!”
The chatbot provided a six-step plan that included evacuating the travelers and arranging alternative transportation.
Text showing the apology letter ChatGPT generated for Wanping Aw.
“Actually it’s better,” she said. “ChatGPT provided a good solution — better than my expectations — and also a great apology letter which I wouldn’t have able been to write under such stressful situations.”
Luxury vacation home co-ownership platform Pacaso is attempting to appeal to the masses, as it grows its business during a pricey and competitive phase of the housing market.
The company, which launched in 2020 with multimillion-dollar homes listed for co-ownership, is now introducing thousands more listings with share prices starting as low as $200,000. Previously, shares had been closer to half a million dollars, or higher.
Pacaso lists shares of vacation homes, generally an eighth but sometimes larger shares, and then facilitates the purchase, including financing if necessary. It also furnishes and manages the home, divvying up the owners’ time in the home through an app. It takes fees for both the purchase and the management.
“You can afford a lot more home when you buy one eighth or one quarter of it when compared to purchasing the whole thing, and we’re living in an environment right now where housing affordability is a problem,” said Austin Allison, co-founder and CEO of Pacaso. “Home prices are high, interest rates are high, so it’s really difficult for people to afford the home of their dreams.”
Unlike timeshares in resorts, where consumers buy the time, not the property, Pacaso owners can benefit from the home’s value, which usually goes up over time.
An example of Pacaso’s new lower-priced vacation home listings.
CNBC
“Our owners who have resold have benefited from about 10% appreciation above and beyond what they paid for the underlying home previously. So the Pacaso shares generally track with the underlying real estate,” said Allison.
Wealthier buyers have been scooping up ski homes in Colorado and beach homes in Hawaii, paying hundreds of thousands of dollars for their shares. Pacaso takes a hefty fee — between 10% and 15% of the value of the home on the front end — associated with aggregating the group of owners, facilitating the transaction, and setting up the co-ownership structure.
Pacaso reached more than $1 billion in revenue last year, the company said.
The company has, however, seen some backlash from communities that liken it to an Airbnb on steroids. There is even a website dedicated to fighting the company, called “Stop Pacaso Now.”
Residents of Sonoma, California, passed an ordinance prohibiting Pacaso from operating in that city. In St. Helena, California, which prohibits timeshares, Pacaso reached a settlement that protects its four homes already there, but the company is not allowed to expand to other properties.
“We operate in more than 40 markets nationwide and in only a handful are we misunderstood,” argued Allison. “Our approach is to work with policymakers and educate them on the facts and benefits. Our belief is that over time this will prevail. It hasn’t worked in Sonoma yet and a small handful of communities who have passed ordinances to resist the model.”
Pacaso is also adding a new suite of services to help primary homebuyers access the home-sharing model. Roughly one-fifth of primary homebuyers last year purchased with either a friend or relative, according to real estate site Zillow.
“People are now using co-ownership as a way to be able to afford houses that they otherwise wouldn’t be able to afford. So, it’s not just happening in the vacation home space,” said Allison.
Reddit power users who participated in the company’s IPO made millions of dollars as a group in profits after the stock’s big jump in its first day on the market.
While Redditors interviewed by CNBC ahead of the offering said they were skipping out on the IPO due to concerns about the business and the company’s often fraught relationship with moderators, Chief Financial Officer Drew Vollero told Axios that tens of thousands of users ended up purchasing shares.
The stock jumped 48% in its debut on Thursday, closing at $50.44, up from the $34 offer price.
Certain Redditors — along with company insiders and their friends and family members — were able to join the initial public offering through the company’s directed-shared program, or DSP. It’s a model that was used by companies like Airbnb, Rivian and Doximity to reward their loyal users and customers.
Of the 22 million shares that Reddit and existing stakeholders sold in the offering, some 1.76 million were made available through the DSP, equal to 8% of the deal. The shares were offered based on a user’s reputation, measured through what the company calls karma.
Because Reddit’s DSP doesn’t have a lockup period, participants could immediately sell shares, unlike company insiders and early investors, who have to wait about 180 days. The stock shot up as high as $57.80 shortly after the IPO, and some users said they sold after the early rally.
One Redditor with the username LearnedButt claimed on the r/RedditIPO forum to have made a profit of $20,000 after the initial pop. The user said they sold the stock at $54 a share.
“Even if it goes to 100/share, I’m cool and feel not an ounce of FOMO,” LearnedButt wrote, using the acronym for fear of missing out. “This is 20K I didn’t have an hour ago.”
In a reply to LearnedButt, Reddit user friskevision wrote, “Although I didn’t invest as much as you, I did make a quick $1,500. Reddit finally pays me back for those years of using it. :)”
Meanwhile, the user blackberrydoughnuts expressed regret for selling too late after the shares dropped below $50.
“I sold my 1000 shares at $48 and I’m sad I didn’t sell earlier when it was at $54!” blackberrydoughnuts wrote. “I really should have!”
Redditors used E-Trade to purchase shares via the DSP, which was only available to U.S. residents.
Reddit user Reepicheepee made a small investment in the shares.
“Just sold 15 at $50,” Reepicheepee said. “I saw the price dropping and decided to cash in. Small net of $250, though! I’ll continue watching the price throughout the day to see if I made the right call …”
Though some Redditors were out to make a quick buck, others like follysurfer plan on becoming long-term Reddit shareholders.
“Got 20 shares,” follysurfer wrote. “Guess I’ll hold them for 20yrs and see what happens.”
Stock chatter on Reddit is a familiar subject and one of the reasons the site is so well known.
The Wallstreetbets subreddit also became known known for its role in helping spawn the 2021 meme stock boom and the meteoric rise of stocks like GameStop and AMC Entertainment.
Reddit CEO Steve Huffman acknowledged the importance of Wallstreetbets in an interview with CNBC on Thursday, brushing aside concerns that the vocal community could cause any problems on Reddit’s first day of trading.
“That’s the beautiful thing about Reddit, is that they tell it like it is,” Huffman said. “But you have to remember they’re doing that on Reddit. It’s a platform they love, it’s their home on the internet.”
Redditor erjo5055 said in the Wallstreetbets forum, “Guess using this site for nearly 10 years has finally paid off. I’m sad I didn’t buy more shares, was going to buy 2x as many.”
The Reddit user Galactic responded, “High-5, fellow DSP dumper,” adding, “Never thought this site would make me money, but here we are!”
One commenter on Wallstreetbets, PatrickBateman-AP, had a word of caution for anyone who hasn’t yet sold.
“It will absolutely plummet tomorrow,” PatrickBateman-AP wrote.
Reddit shares jumped as much as 70% in their debut on Thursday in the first initial public offering for a major social media company since Pinterest hit the market in 2019.
The 19-year-old website that hosts millions of online forums priced its IPO on Wednesday at $34 a share, the top of the expected range. Reddit and selling shareholders raised about $750 million from the offering, with the company collecting about $519 million.
The stock opened at $47 and reached a high of $57.80. At that price, the company had a market cap of about $10.9 billion. Reddit shares then dropped to $48.64 roughly a half hour after they began trading, giving the company a market cap of about $7.9 billion.
Trading under the ticker symbol “RDDT,” Reddit is testing investor appetite for new tech stocks after an extended dry spell for IPOs. Since the peak of the technology boom in late 2021, hardly any venture-backed tech companies have gone public and those that have — like Instacart and Klaviyo last year — have underwhelmed. On Wednesday, data center hardware company Astera Labs made its public market debut on Nasdaq and saw its shares soar 72%, underscoring investor excitement over businesses tied to the surge in artificial intelligence.
At its IPO price, Reddit was valued at about $6.5 billion, a haircut from the company’s private market valuation of $10 billion in 2021, which was a boom year for the tech industry. The mood changed in 2022, as rising interest rates and soaring inflation pushed investors out of high-risk assets. Startups responded by conducting layoffs, trimming their valuations and shifting their focus to profit over growth.
Reddit’s annual sales for 2023 rose 20% to $804 million from $666.7 million a year earlier, the company detailed in its prospectus. The company recorded a net loss of $90.8 million last year, narrower than its loss of $158.6 million in 2022.
Based on its revenue over the past four quarters, Reddit’s market cap at IPO gave it a price-to-sales ratio of about 8. Alphabet trades for 6.1 times revenue, Meta has a multiple of 9.7, Pinterest’s sits at 7.5 and Snap trades for 3.9 times sales, according to FactSet.
In addition to those companies, Reddit also counts X, Discord, Wikipedia and Amazon’s Twitch streaming service as competitors in its prospectus.
Reddit is betting that data licensing could become a major source of revenue, and said in its filing that it’s entered “certain data licensing arrangements with an aggregate contract value of $203.0 million and terms ranging from two to three years.” This year, Reddit said it plans to recognize roughly $66.4 million in revenue as part of its data licensing deals.
Google has also entered into an expanded partnership with Reddit, allowing the search giant to obtain more access to Reddit data to train AI models and improve its products.
Reddit revealed on March 15 that the Federal Trade Commission is conducting a nonpublic inquiry “focused on our sale, licensing, or sharing of user-generated content with third parties to train AI models.” Reddit said it was “not surprised that the FTC has expressed interest” in the company’s data licensing practices related to AI, and that it doesn’t believe that it has “engaged in any unfair or deceptive trade practice.”
Reddit was founded in 2005 by technology entrepreneurs Alexis Ohanian and Steve Huffman, the company’s CEO. Existing stakeholders, including Huffman, sold a combined 6.7 million shares in the IPO.
As part of the IPO, Reddit gave some of its top moderators and users, known as Redditors, a chance to buy stock through a directed-share program. Companies like Airbnb, Doximity and Rivian have used similar programs to reward their power users and customers.
“I hope they believe in Reddit and support Reddit,” Huffman told CNBC in an interview on Thursday. “But the goal is just to get them in the deal. Just like any professional investor.”
Redditors have expressed skepticism about the IPO, both because of the company’s financials and its often troubled relationship with moderators. Huffman said he recognizes that reality and acknowledged the controversial subreddit Wallstreetbets, which helped spawn the surge in meme stocks like GameStop.
“That’s the beautiful thing about Reddit, is that they tell it like it is,” Huffman said. “But you have to remember they’re doing that on Reddit. It’s a platform they love, it’s their home on the internet.”
OpenAI CEO Sam Altman is one of Reddit’s major shareholders along with Tencent and Advance Magazine Publishers, the parent company of publishing giant Condé Nast. Altman’s stake in the company was worth over $400 million before the stock began trading. Altman led a $50 million funding round into Reddit in 2014 and was a member of its board from 2015 through 2022.
Reddit, the 19-year-old website that hosts millions of online forums, priced its IPO on Wednesday at $34 a share, the top of the expected range.
The offering brought in $519 million, according to a press release, and values the company at close to $6.5 billion. Reddit had planned to price the deal at $31 to $34 a share.
Reddit’s public market debut on Thursday, under ticker symbol “RDDT,” will be the first for a major social media company since Pinterest’s debut in 2019 and one of the very few venture-backed tech deals of the past two years. Reddit sold 15.28 million shares in the offering, while existing shareholders sold another 6.72 million.
The company is taking a haircut from its private market valuation of $10 billion in 2021 at the peak of the tech boom. Soaring inflation and rising interest rates pushed investors out of risky assets in 2022, eventually forcing startups to downsize, slash their valuations and focus on profit over growth.
On Wednesday, data center hardware company Astera Labs went public, and saw its shares skyrocket 72%, as investors flock to anything involving artificial intelligence. However, the IPO market has been in an extended dry spell for more than two years, with Instacart, Klaviyo and Arm Holdings among the few tech companies to hold offerings over that stretch.
Reddit’s core business of online advertising faces competition from industry giants like Alphabet and Meta. The company also counts Snap, X, Pinterest, Discord, Wikipedia and Amazon’s Twitch streaming service as competitors, according to its prospectus.
Revenue increased 20% last year to $804 from $666.7 million in 2022. Its net loss in 2023 was $90.8 million, marking an improvement from the $158.6 million net loss it recorded the previous year.
The company has said in filings that data licensing could become a big money maker, and that it plans to recognize about $66.4 million in such deals in 2024. The company recently entered an expanded partnership with Google, allowing the search giant more access to Reddit data to train AI models and other tasks.
Last week, Reddit said the Federal Trade Commission sent a letter to the company inquiring about its data-licensing practices.
As part of the initial public offering, Redditgave some of its leading moderators and users, known as Redditors, a chance to buy stock through a directed-share program. It’s a model that was previously used by Airbnb, Doximity and Rivian to reward their power users and customers.
Daryn Carr is no stranger to side hustles. After his mom died from Covid in 2020, he used funds from her pension to pay off some bills and buy a car. With the remaining money, he invested in crypto and started an ATM business.
One day in 2022, while scrolling through Instagram, he came upon another opportunity. Carr found a guy named Anthony Agyeman,who was promoting a type of arbitrage on Airbnb that involved taking listings from hotel booking and short-term rental sites and relisting them on Airbnb at a higher price, retaining the profit.
Agyeman claimed in marketing materials that his business, Hands-Free Automation, had “5-year exclusivity contracts” with thousands of property owners that gave it permission to relist their properties at a higher price.
Getting involved with Hands-Free Automation, or HFA, required a payment of between $20,000 and $30,000 to effectively own a piece of Airbnb listings. Agyeman described it as a “minimal to no risk” path to extra income with a guaranteed return in three to six months of investment, “then pure profit after.”
HFA has no affiliation with Airbnb but found a way to make money on the marketplace using a practice that Airbnb explicitly prohibits. Agyeman was following similar tactics that he’d used on Amazon and Shopify, where he promoted the opportunity for investors to passively own virtual storefronts.
The tech companies that own these marketplaces all say they use a combination of artificial intelligence and automation along with manual reviews to monitor vendor and customer activity for fraud and other misbehavior, but they’ve been ill-equipped to deal with the volume of complaints stemming from various sorts of scams.
The Federal Trade Commission and the Department of Justice have cracked down on companies similar to HFA, accusing them ofadvertising their products with false promises of profit and successandallegedly selling “automated” software that didn’t work. HFA and Agyeman haven’t been charged by the Justice Department, FTC or any law enforcement agency.
Airbnb told CNBC it was unaware of any contact from regulators regarding HFA.
For a clearer picture of HFA’s inner workings, CNBC spoke with investors in a lawsuit filed against the company in February 2023, as well as six former HFA employees, an Airbnb customer who unwittingly stayed at an HFA-listed property, and a property owner who said his listings were uploaded to Airbnb by HFA without permission. CNBC has granted anonymity to those who requested it because they weren’t authorized to speak publicly on HFA’s operations, or feared retribution from the company.
Brian Chesky, co-founder and CEO of Airbnb, Inc., speaks during an interview with CNBC on the floor of the New York Stock Exchange in New York City, May 10, 2023.
Brendan McDermid | Reuters
Carr, who lives in New York, wired HFA $1,000 through his crypto debit card at the urging of a salesperson and borrowed an additional $18,490 to pay for HFA’s entry-level package. In total, Carr paid HFA $19,497, according to the lawsuit, which Carr filed along with 11 other investors. The plaintiffs alleged that HFA falsely claimed it had relationships with the properties, and that HFA’s services violated Airbnb’s terms of service. The case is still proceeding.
Carr told CNBC that his investment with HFA disappeared, leaving him in debt and working a customer service job to make ends meet. He claims he got scammed and suspects that much of his money went toward subsidizing Agyeman’s lifestyle.
“I couldn’t believe that I lost $20,000 into thin air,” Carr said.
Thomas Hunker, an attorney for Agyeman and HFA, denied that customer money had been used for anything except the business.
“We have always honored our fiduciary obligations with respect to allocation of company money in the best interest of the company,” Hunker said in a written response to CNBC.
HFA admitted to customers that it was “continuously encountering problems with” Airbnb “due to the constant changes they have made to their terms and services,” according to the lawsuit.
Plaintiffs in the suit against Agyeman and other defendants are asking for at least $624,000 in damages from their lost investments. Meanwhile, the defendants continue to advertise and sell products to prospective investors under a new company called Wealthway. They’re deploying a team that aims to generate more than $3.5 million in monthly sales, Wessel Botes, a former sales employee who left the company in November, told CNBC.
Hunker said in an email to CNBC that HFA identifies properties to list from third-party websites used by hotels and other property owners to “increase bookings.” That gives HFA “indirect permission” through those third-party sites to relist rooms on Airbnb, he said, adding that the base price of the booking goes back to the property owner.
“Using a 3rd party to book a hotel or 3rd party accommodation and listing it on Airbnb at an inflated rate is not allowed,” the policy says.
Airbnb told CNBC that business practices such as Agyeman’s aren’t permitted. The company said it continues to improve systems that identify and remove fake or misleading listings, adding that it had blocked more than 216,000 suspicious listings as of September.
Hunker said HFA doesn’t have investors, but rather has clients who pay a “flat fee” for an arbitrage service. Yet, HFA says on its LinkedIn page that it helps “Airbnb investors add 300+ properties to their account without having to purchase the properties.”
Before connecting CNBC with his attorney, Agyeman said in an interview that he wasn’t involved in the day-to-day operations at HFA and he denied any financial improprieties.
Airbnb told CNBC it had no business relationship with Agyeman and had taken action to curtail his operations. The company said multiple accounts linked to Agyeman and HFA had been removed.
The opportunity for property owners to make money is fundamental to Airbnb’s business model. The company says that, since its founding in 2007, hosts have made more than $180 billion. En route to upending the hotel industry, Airbnb’s market cap has swelled to almost $95 billion, making it bigger than any hotel chain.
Airbnb acknowledged in its annual report that “perpetrators of fraud” use “complex and constantly evolving” tactics on the site and that “fraudsters have created fake guest accounts, fake host accounts, or both, to perpetrate financial fraud.”
Agyeman, who started HFA with co-founder Megan Shears, claims to have created proprietary software that would fully automate the arbitrage process by trawling the internet for properties to relist at a markup. HFA’s employees would take care of booking properties and handle guest inquiries and complaints.
Agyeman, 27, lives in Texas, as does Shears, 26, according to public records. Their social media posts show luxurious vacation spots next to screenshots of Airbnb bookings purportedly worth thousands of dollars. Several investors said in court filings that they first learned about Agyeman and Shears through Instagram.
“It’s proven and it works and you get higher returns than the stock market,” one HFA promotional video said.
Investors in the lawsuit say otherwise. And some customers who used the service to book travel say they lost money and were left scrambling for a place to stay.
In February 2022, a customer named Kathy booked a beachside Airbnb on Florida’s Sanibel Island for a five-night spring break vacation with her family. Kathy, who spoke on condition that CNBC not use her last name, paid $4,600 upfront for what she thought was a “fantastic” poolside one-bedroom apartment. CNBC identified Kathy as an HFA customer because her name and phone number were posted on HFA’s Instagram account.
Days went by without word from her host. Kathy, who lives in Texas, repeatedly reached out to Airbnb, but was told she’d have to engage directly with the host to cancel her booking.
Kathy looked up the property’s address on Google Maps. Rather than a tropical apartment building, she saw what appeared to be a vacant lot. “Please refund my money,” she recalled telling the host.
Desperate to make sure she had a place to stay, Kathy booked a room at a resort in Fort Myers, more than 40 miles from Sanibel Island. Ultimately, after days of back-and-forth messages, Airbnb refunded about half her money.
It ended up being “a super expensive vacation,” Kathy said. “I will never use it again,” she said of Airbnb.
For Agyeman and Shears, Airbnb was just one of their stomping grounds. They had an Amazon and Shopify automation business, a trucking business, and a line of vegan gummies. Agyeman also helped run a YouTube channel focused in part on swapping tips for running a successful business.
The duo broke into the arbitrage business in 2020. According to the lawsuit, Agyeman and Shears claimed in marketing material that they had more than 200,000 properties and had “proprietary relationships with Airbnb and Vrbo,” Expedia’s vacation rental site.
Agyeman relied on freelancers who would take data from other travel booking sites to use on their Airbnb and Vrbo listings, according to former employees and internal documents. An internal training video viewed by CNBC instructed copywriters on how to recycle the original listings’ details for Airbnb or Vrbo.
“PLEASE ANYWHERE IN THE LISTING DO NOT MENTION THAT THIS IS A HOTEL OR THE HOTEL NAMES OF THE HOTEL OR RESORTS,” a training document said.
HFA said its software algorithmically adjusted the price of a property in response to changes on the original listing. Agyeman said on social media that his employees were “the only ones tapped into Airbnb & Vrbo Arbitrage Automation.”
One spreadsheet listed 68 different clients as Airbnb investors. Going at least as far back as July 2022, HFA attracted 120-plus investors who collectively paid close to $3 million for “automated” Airbnb, Shopify, or Amazon businesses, according to internal payment tracking and financial records reviewed by CNBC.
Carr, who was listed as a property host, said that when it came to his experience with HFA, there was chaos on both sides of the marketplace. On one occasion, he said, he was contacted by the owner of a hotel who found one of its rooms on Airbnb.Another time, a woman messaged him 30 to 40 times when she couldn’t find her booking.
“People are going to the hotels saying I got an Airbnb, and they’re like, ‘What are you talking about?’” Carr said.
Carr and other HFA investors told CNBC their frustrations were dismissed or met with legal threats. But in a letter to investors cited in the lawsuit, HFA conceded that its Airbnb business had been disappointing.
“Due to Airbnb constant changes we believe this program will take much longer than anticipated to help you our client reach your goals,” HFA wrote.
Still, HFAdeclined to refund investors’ funds, instead offering them an Amazon or Shopify storefront, according to the letter and the lawsuit. Hunker said this was contemplated by the parties’ agreements.
Getting properties listed on Airbnb involved some finagling, because the company requires hosts to prove ownership. To get around Airbnb’s rules, HFA instructed its investors to list their own homes, a former employee and two investors told CNBC. Hunker denies that HFA gave those instructions. Once validated as a property owner, investors could then add more listings that HFA would pull from other websites.
Negative reviews flowed in from unhappy would-be vacationers, outraged investors and a business owner who’d discovered his property had been listed without consent.
An HFA investor told CNBC that one listing received a comment from a guest who said he paid $800 for a motel room that cost less than half that amount and described it as a “total scam.”
“Host does not own the property,” the reviewer said, according to a screenshot of the message seen by CNBC. “It is a standard motel room, no frills.”
On a hot September day in Las Vegas in 2022, another guest showed up at an MGM hotel only to discover there was no reservation through Airbnb. Neither the guest nor Airbnb could get in touch with the listed host for hours. Carr, the HFA investor host on record for the property, provided CNBC with screenshots of the messages.
“I had my family double parked on the Vegas strip for three hours wasting gas while I was running back and forth between the three MGMs in 103 degree weather being told each time after waiting in line that there was no reservation in my name,” the guest wrote.
Eventually MGM found the room had been booked through Expedia, which is where HFA turned after receiving the reservation request on Airbnb.
An Expedia spokesperson declined to comment.
Collin Ballard was shocked in May 2022, when he saw photos from his Dallas hostel advertised on Airbnb. Most alarming was the price: $1,760 a night vs. his starting nightly rate of $40.
Collin Ballard found a room from his Dallas hostel listed on Airbnb without his permission.
Collin Ballard
Ballard wrote to the host, telling him he was the owner and asking him to remove the listing.
“I just figured it was someone scamming,” Ballard said in an interview, adding that he knew nothing about Airbnb arbitrage.
Ballard said nobody ever responded to his message, but the listing was eventually taken down.
Airbnb ultimately removed most if not all of HFA’s listings over the course of several months in 2022, according to the lawsuit, though employees and investors told CNBC they weren’t sure why.
Several investors told CNBC that they encountered verification problems because it was impossible to prove they owned their listings. HFA responded by forging bills or other documents with the stolen listings’ address, according to investors, the lawsuit,an HFA training video, and a former employee.
If the allegations are true, HFA was sidestepping a key safety feature. False information can make it difficult for Airbnb to respond in an emergency or a situation that calls for the involvement of its safety team.
Airbnb told CNBC that it was rolling out a more robust verification process in the U.S. and elsewhere beginning as early as 2024.
Hunker denied allegations that HFA forges documents, and said Airbnb doesn’t require the lister to be the property owner.
By the end of last year, HFA’s investors realized that their promised gains were not materializing. Dozens unsuccessfully pressed for refunds of their deposits, according to a former employee, an internal HFA document, and the investor lawsuit.
A month after HFA’s then-counsel wrote to two dozen investors in January 2023 declining to provide refunds, investors filed their lawsuit, with 22 plaintiffs saying they received fewer than five bookings each, including 16 who said they had no bookings at all.
Hunker said HFA could present records showing its clients profited from the company’s services on the condition that CNBC sign a nondisclosure agreement. CNBC declined.
Agyeman continues promoting his businesses on social media. In his Instagram bio, he includes a new private equity venture called OKU Capital. Agyeman is its only member, according to Florida state filings and the firm’s LinkedIn profile.
Agyeman’s Wealthway advertises “fully managed,” “automated” vacation rental businesses with “minimal to no risk.” It’s similar to HFA, down to the branding on its website.
On its website, Wealthway has a video appearing to show a meeting between Agyeman and an Airbnb executive named David Levine, whose LinkedIn profile says he’s Airbnb’s head of API and enterprise partnerships for North America.
“What you guys have been doing at Wealthway is incredible and you guys have been following our partner guidelines,” Levine says in the recording.
In November, Botes, the former HFA salesman, became suspicious of the clip and sent it to Levine in a LinkedIn message.
“That video appears to have been taken out of context and altered,” Levine replied, according to screenshots of the messages viewed by CNBC. “Neither I, nor Airbnb, have any affiliation with Wealth Ways Vacation Rentals.”
Airbnb said it believes the clip is inauthentic. Levine didn’t respond to CNBC’s LinkedIn message. Hunker didn’t respond to a question about the video’s authenticity.
When it comes to travel abroad, popular destinations like London, Paris and Rome always seem to top the wish list for Americans.
But many travelers are looking beyond those mainstay cities for trips in 2024. Interest in major Asian hubs, off-the-beaten-path locales in Europe and other areas has surged, experts said.
“It’s clear that 2024 is shaping up to be the year of globetrotting,” Airbnb wrote last month.
Broadly, overseas travel is hot: Searches for international flights are up 13% year-over-year, even though prices are about 10% higher, according to Steve Hafner, CEO of Kayak, a travel website.
“Americans are looking to go abroad,” Hafner said. “They’ve done the domestic stuff the last couple years.”
Here are the trending destinations for Americans in 2024.
Tokyo and Seoul, South Korea, respectively rank as the No. 1 and 2 trending international hot spots next year among U.S.-based travelers, according to travel app Hopper.
Kayak data shows a similar trend. Its top five hot spots are in Asia: Hong Kong; Shanghai; Taipei City, the capital of Taiwan; Tokyo; and Osaka, Japan, respectively.
For example, searches for Hong Kong and Shanghai are up 355% and 216%, respectively, year-over-year, according to Kayak. (The travel site analyzed search traffic among Americans from March 16 to Sept. 15 this year, for travel planned in 2024, and compared it to the same period last year.)
Kyoto, Japan
Sw Photography | Stone | Getty Images
Japan also ranks highly among non-U.S. travelers: Osaka, Kyoto and Tokyo are among the top 24 worldwide destinations next year, according to Airbnb data.
Asian nations were among the slowest to ease border closures related to the Covid-19 pandemic. Now that they’re open again, tourists are unleashing a pent-up wanderlust, experts said.
“People couldn’t travel there, and now they are making it up,” said Sofia Markovich, a travel advisor and founder of Sofia’s Travel.
China reopened its borders in January 2023, “one of the last places” to do so, Hafner said.
Japan reopened to tourists starting in June 2022. There are other factors driving increased interest to that nation, like a historically strong U.S. dollar relative to the Japanese yen (and other currencies), which gives Americans additional buying power, and more flights from budget airlines, Hafner said.
Search traffic for Japan has more than tripled for trips during the first nine months of 2024 relative to the same period in 2023 — a larger increase than any other nation, Airbnb said.
Americans are looking to go abroad. They’ve done the domestic stuff the last couple years.
Historically, Tokyo has “hands down” been the most popular city for Americans to visit in Asia, said Hayley Berg, lead economist at Hopper. Now, demand is “even greater” than usual, she said.
Tourists may also pay a hefty premium to fly to Asia next year: “Good deal” prices for airfare to the continent is $1,204 for 2024, on average — 45% more than 2019, a much larger increase relative to other continents, according to Hopper.
Overcrowding in the traditional European hubs is driving an influx of tourists to generally less-frequented areas, experts said.
For example, Stockholm, Sweden; Budapest, Hungary; Helsinki, Finland; and Prague, Czech Republic, respectively rank seventh to 10th on Kayak’s list of trending destinations abroad.
Copenhagen, Denmark, is No. 4 on Hopper’s 2024 hot spot ranking. Prague and Edinburgh, Scotland, are No. 7 and No. 8, respectively.
“People are really discovering the off-the-beaten path places,” Markovich said. “Because your Paris and your Rome and London and Barcelona are just too crowded. And experienced travelers want to get away from that.”
She recommends “a lot” of Scandinavian travel since it’s “so unspoiled by overtourism.”
The Salisbury Crags in Holyrood Park, Edinburgh, Scotland.
Andrew Merry | Moment | Getty Images
Additionally, Finland became a member of the NATO military alliance in 2023, driving more awareness of the nation among Americans, Kayak’s Hafner said.
Cities like Budapest and Prague have always been popular but not to the extent of some European tourist magnets, Markovich said.
One of those typical magnets — Paris — is poised for an additional burst this year: The City of Light is hosting the 2024 Summer Olympics.
Demand for flights to Paris — and for nearby cities — during the Olympics has more than doubled versus this time last year, according to Hopper data.
Lower relative prices for some lesser-known spots in Europe are also likely attracting people, Berg said, especially since average flights to Europe overall are 5% more expensive in 2024 versus 2023, at $717, Hopper data shows.
Although places like Cancun, Mexico, remain popular as warm-weather beach destinations, Americans are increasingly turning to Atlantic tropical vacations over the Caribbean, said Hopper’s Berg.
“This is something new this year that we started seeing emerge” and the trend “will definitely continue” in 2024, she said.
For example, Tenerife, the largest of Spain’s Canary Islands, and Funchal, the capital of Portugal’s Madeira archipelago, ranked No. 9 and 10, respectively, on Hopper’s international trend list. Both are located off the West African coast.
People are really discovering the off-the-beaten path places.
Sofia Markovich
travel advisor
Though not on the Atlantic, Málaga, a Mediterranean port city on the Costa del Sol in southern Spain, ranked sixth on Kayak’s list. The Andalusian city gets about 300 days of sunshine a year, on average, and, according to one recent report, is the No. 1 city in the world for expats.
Search interest there is up 60% year-over-year, Kayak data shows. And that’s following a year in which Málaga was already “overrun,” Hafner said.
Sam Altman, CEO of OpenAI, attends the Asia-Pacific Economic Cooperation (APEC) CEO Summit in San Francisco, California, U.S. November 16, 2023.
Carlos Barria | Reuters
A wide swath of Silicon Valley has hitched its hopes and fortunes over the past few years to the kind of generative artificial intelligence technologies that OpenAI helped popularize.
Many industry experts point to the debut of ChatGPT late last year as an iPhone-like moment, ushering a potential shift in the way people interact with computers via written prompts that can produce creative, seemingly human-like text.
Just as Apple had the late Steve Jobs acting as the company’s esteemed figurehead, articulating the appeal of the iPhone and personal computers to the masses, so too did OpenAI have its own charismatic leader in Sam Altman.
With Altman out as CEO — at least for now — after his sudden firing on Friday, the Apple comparisons are flowing freely. Jobs was fired as CEO of Apple in 1985, a move that lives in Silicon Valley lore, since it was after his return in 1997 that Apple found the path that eventually made it the most valuable company in the U.S.
Altman, who previously ran startup accelerator Y Combinator, has spent the past year cozying up to world leaders and making routine appearances at tech events, turning the 38-year-old executive into an industry celebrity, in the mold of Jobs, Meta CEO Mark Zuckerberg, Amazon founder Jeff Bezos and Tesla CEO Elon Musk.
Along with Altman, OpenAI’s board removed Greg Brockman from his role as chairman. Later Friday, Brockman said he was quitting the company.
“What happened at OpenAI today is a Board coup that we have not seen the likes of since 1985 when the then-Apple board pushed out Steve Jobs,” longtime startup investor Ron Conway said Friday evening in an X post. “It is shocking; it is irresponsible; and it does not do right by Sam & Greg or all the builders in OpenAI.”
Efforts are already underway by OpenAI investors to get Altman back, according to people familiar with the matter. Microsoft, Tiger Global, Sequoia Capital and Thrive Capital are among a number of OpenAI’s top backers that are trying to reinstate Altman, said the people, who asked not to be named because discussions are confidential. The Verge reported on Saturday that Altman is “ambivalent” about the possibility of returning.
Airbnb CEO Brian Chesky referred to Altman in an X post as “one of the best founders of his generation” who “has made an immense contribution to our industry.”
Matt Schlicht, the CEO of the startup Octane AI, told CNBC that Altman and Brockman, who was formerly the chief technology office of Stripe, “made a technology available that we’d only ever dreamed about” and called it “the most exciting and powerful development of our lifetime.”
Octane is one of many new startups using the so-called large language models that OpenAI packages under its GPT family of software tools. Schlicht said the technology has so far “enabled us to put human-level intelligence inside of our code, and because of that we have helped entrepreneurs generate over half a billion in revenue.”
“I’ve known both Sam and Greg for over a decade, they are incredible and inspiring leaders,” Schlicht said. “After hearing about their untimely departure I was immediately filled with sadness. Innovation in the world was suddenly halted.”
Ryan Jannsen, CEO of Zenlytic, shared Schlicht’s sentiment.
“The AI community is reeling,” Jannsen said, adding that technologists are confused about the circumstances related to Altman’s firing and what it means for OpenAI going forward.
“Sam and OpenAI were the catalyst that showed the world what AI tech is capable of,” Jannsen said. “A huge amount of the excitement and activity in AI today is very directly thanks to their pioneering work.”
Whether or not Altman returns, the turmoil at OpenAI could give rivals an advantage in what’s quickly become a highly competitive market for advanced LLMs. From heavily funded startups like Anthropic and Cohere to cloud computing giants Google and Amazon, companies will likely be “looking for the next best alternative,” given the perceived instability at OpenAI, said industry analyst Patrick Moorhead.
“They’re not the only game in town,” Moorhead said.
Josh Wolfe, a partner at venture firm Lux Capital, said OpenAI is taking a huge reputational hit at a time when companies are deciding what models they’re going to use as building blocks.
“There was a perception of steady, predictable, reliable reputable progress and engagement and communication with industry,” Wolfe said. “The surprise capriciousness of the move signals total unpredictability, which is terrible for companies making plans to work with or trust OpenAI.”
A big part of the challenge in understanding OpenAI is its unusual company structure. The board of OpenAI oversees the nonprofit, of which the corporate entity is a part, and “acts as the overall governing body for all OpenAI activities,” according to the blog post announcing Altman’s ouster.
The post said that a “deliberative review process by the board” concluded that Altman “was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities.”
Silicon Valley’s high-profile startup CEO firings typically involve wrongdoing, rather than just philosophical differences about where the company is headed.
Several investors told CNBC that OpenAI’s hybrid model presented a red flag from the beginning, in part because incentives can too easily be misaligned. Now, they said, the company risks severe brain drain if top talent chooses to follow Altman to his next project or a competitor in the industry.
Altman, meanwhile, has the advantage of having made such a name for himself that he’d have no problem raising money for a new project from investors who view him as the next great tech luminary.
“Sam Altman is a hero of mine,” former Google CEO and investor Eric Schmidt said in an X post. “He built a company from nothing to $90 Billion in value, and changed our collective world forever. I can’t wait to see what he does next. I, and billions of people, will benefit from his future work- it’s going to be simply incredible.”
Eric Schmidt, the former CEO of Google, arrives for the Inaugural AI Insight Forum in Russell Building on Capitol Hill, on Wednesday, Sept. 13, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images
Airbnb’s Chesky wrote that he’d spoken with Altman and Brockman and that they have his “full support.”
“I’m saddened by what’s transpired,” Chesky wrote. “They, and the rest of the OpenAI team, deserve better. He added in a separate post that Altman is “one of the best founders of his generation.”
As for Microsoft, whose CEO Satya Nadella was reportedly caught off guard by the shakeup, several venture capitalists were surprised that the company could be so unaware of what was brewing given the billions they’ve invested in the company.
“I imagine Microsoft might ask for a board seat next time they decide to plow $15 billion into a startup,” said Zachary Lipton, a Carnegie Mellon University professor of machine learning and operations research.
Industry analyst Moorhead said Microsoft could “figure out how to buy this company and how to put Sam in charge.”
“That’s the first play, it’s potentially finding ways to remove the current board of directors, reinstall new board of directors and then bring Sam and company back in — making sure the band stays together,” Moorhead said.
Regardless of the current chaos, Carnegie Mellon’s Lipton said he expects investors to remain bullish on AI.
“This story has elements of corporate and ideological discord, but not even a whiff of diminished promise,” Lipton said.
FTX Founder Sam Bankman-Fried leaves Manhattan Federal Court after a court appearance on June 15, 2023 in New York City.
Michael M. Santiago | Getty Images
As lawyers in Sam Bankman-Fried’s criminal trial presented their closing arguments on Wednesday, prosecutors reminded jurors of the mountain of evidence provided by key witnesses, while defense counsel accused the government of portraying the FTX founder as a “monster.”
The prosecution kicked off the proceedings, trying to give the 12 jurors a clear sense of why they’ve spent the past four weeks sitting in a lower Manhattan courtroom.
“Almost a year ago, thousands of people from all over the world who deposited money with FTX started withdrawing funds,” Assistant U.S. Attorney Nicolas Roos told the court.
Roos said there’s “no serious dispute” that $10 billion in customer money that was sitting in FTX’s crypto exchange went missing, with some of it going to to pay for real estate, investments, loan repayments and political donations.
The main thing the jury has to decide, Roos said, is whether Bankman-Fried knew that taking the money was wrong.
“The defendant schemed and lied to get money, which he spent,” Roos said.
Bankman-Fried, the 31-year old son of two Stanford legal scholars and graduate of Massachusetts Institute of Technology, faces a potential life sentence if convicted on charges, which include wire fraud, securities fraud and money laundering, all tied to the collapse late last year of FTX and sister hedge fund Alameda Research. He pleaded not guilty.
The trial, which began in early October and is set to wrap up in the coming days, has largely pitted the testimony of Bankman-Fried’s former close friends and top lieutenants against the sworn statements of their former boss and, for many of them, former roommate.
The government’s key witnesses included Caroline Ellison, Bankman-Fried’s ex-girlfriend and the former head of Alameda, and FTX co-founder Gary Wang, who was Bankman-Fried’s childhood friend from math camp. Both pleaded guilty in December to multiple charges and cooperated as witnesses for the prosecution.
FTX founder Sam Bankman-Fried is questioned by prosecutor Danielle Sassoon (not seen) during his fraud trial over the collapse of the bankrupt cryptocurrency exchange at federal court in New York City, U.S., October 31, 2023 in this courtroom sketch.
Jane Rosenberg | Reuters
When it was time for Bankman-Fried’s team to mount a defense, lead counsel Mark Cohen left the bulk of the case to his client, who spent three days on the stand telling the jury that he didn’t defraud anyone, didn’t take customer money and tried to work with his deputies to keep FTX from failing.
Roos spent Wednesday morning asking the jury to look at the evidence. At one point, he asked, “Who is responsible? He then stepped out from behind the podium and towards the defense table, pointed at the defendant and said, “This man, Samuel-Bankman-Fried.”
“A pyramid of deceit was built by the defendant,” Roos said. “That ultimately collapsed.”
The facts, as listed by Roos, were that customers believed their deposits were their own and not to be used by anyone else; that FTX ads continually said the exchange was the safest and easiest way to buy cryptocurrency; and that $10 billion was missing.
Roos told the jury that Bankman-Fried lied to them, reminding them how smooth the defendant was in answering questions from his own attorney but how “he was a different person” when it was the prosecutors’ turn. He had a perfect memory on Friday, Roos said, telling the jury that Bankman-Fried knew the details about the layout of his Airbnb office in California, the reason he went to Hong Kong and why he picked the Miami Heat arena as the one for FTX to sponsor.
That all changed when the government was asking the questions.
“It was uncomfortable to hear,” Roos said, adding that Bankman-Fried said “I can’t recall” over 140 times during questioning by the government.
“To believe his story, you’d have to ignore the evidence,” Roos said. “You’d have to believe the defendant, who graduated from MIT and built two multibillion-dollar companies, was actually clueless.”
Critical to the failure of FTX was the use of customer funds to cover losses in Alameda’s books following the plunge in crypto prices last year. Roos said Bankman-Fried is the one who gave special privileges to Alameda, which he started before founding FTX, allowing it to siphon customer money. He knew it was wrong, Roos said, which is why he kept it secretive.
Roos said Bankman-Fried had been lying to the public about Alameda’s “secret advantages,” and was being untruthful when he told the public and the media that Alameda was just like everyone else.
“Those were lies,” Roos said. Had they known the truth, “investors would have run for the exits,” he said.
Bankman-Fried blamed “messy accounting,” Roos said, adding “give me a break.” He said those comments contradicted what he told Congress, that he’d reconciled the books.
Judge Lewis Kaplan, who presided over the trial, started court almost a half hour late on Wednesday because a juror was stuck in traffic. Then there were technical issues, as the second row of monitors in the jury box stopped working. That led to a 1- minute break.
Later in Roos’s closing, he brought up the infamous spreadsheet of the seven alternate versions of Alameda’s finances that Ellison had put together when third-party lenders were asking for an update. Bankman-Fried testified that he’d seen a spreadsheet but didn’t remember the details and didn’t ask Ellison questions about it. Roos called the explanation “implausible.”
FTX founder Sam Bankman-Fried is questioned by defense lawyer Mark Cohen as he testifies in his fraud trial over the collapse of the bankrupt cryptocurrency exchange, at federal court in New York City, U.S., October 30, 2023 in this courtroom sketch.
Jane Rosenberg | Reuters
Roos referred to metadata showing that Bankman-Fried was part of a meeting for about 30 minutes where the hole in FTX’s balance sheet and repaying lenders were discussed. Metadata shows he was studying the Google Doc of the company’s finances, with numbers indicating the billions in borrowing from FTX.
Roos brought up testimony from three firsthand witnesses who said that they’d spoken with Bankman-Fried about the giant hole in the balance sheet. Ellison said there was no way to repay it, and Singh testified that Bankman-Fried admitted to him that “we are a little short on deliverables.”
Bankman-Fried “had the arrogance to think he could get away with it,” Roos said.
Another point speaking to the defendant’s intent, Roos said, was his tweeting.
Bankman-Fried’s plan last November, when he knew there was only enough money to process one-third of client assets, was to send a confident tweet thread. Singh testified that he wasn’t comfortable with the plan, yet Bankman-Fried went on to tweet that “assets are fine” as the bank run was underway, Roos said.
Bankman-Fried knew Alameda had a negative net asset value of $2.7 billion, Roos said, but wanted to make another $3 billion in venture investments. The only way to do that was with FTX customer funds, he said.
Additionally, Roos told the jury, client money went to $100 million in real estate expenses, including a $30 million penthouse in the Bahamas and $16 million for his parents’ home.
In referencing the Super Bowl picture with Katy Perry and others, Roos called Bankman-Fried a “celebrity chaser.”
Roos walked the jury through a timeline of key moments, as follows:
On Sept. 1, Bankman-Fried saw that FTX had a $13.7 billion hole.
On Sept. 7, Bankman-Fried wrote a long memo proposing the shutdown of Alameda. Still, he spent $45 million for a stake in Skybridge Capital.
Then, on Sept. 22, he paid $4 million to himself.
Four days later, he sent $250 million to Modulo Capital, a hedge fund in the Bahamas.
And on Oct. 3, he funneled $6 million for political donations.
“That’s all you need to know to find him guilty,” Roos said.
In closing the prosecution’s case, Roos referenced the seven charges facing Bankman-Fried and why he can be convicted of each.
In highlighting counts three and four, which charge the defendant with wire fraud against Alameda’s lenders, Roos emphasized the importance of Bankman-Fried’s knowledge of the alternative balance sheet. For count five, conspiracy to commit securities fraud on FTX investors, the primary evidence came from investors who expressed concern about a conflict of interest between Alameda and FTX and who said they wouldn’t have put in money if they knew the truth. Bankman-Fried also lied about revenue, Roos said.
The prosecution reminded the court that Bankman-Fried directed losses to be shifted to Alameda and that FTX’s insurance fund had made up numbers. Add it all up, Roos said, and it debunks the defense’s main argument that Bankman-Fried acted in good faith and believed everything would work out.
“This was a fraud that occurred on a massive scale,” he said.
Following the government’s closing argument, Cohen began his statements at a little before 3 p.m. He said the government is portraying Bankman-Fried as a “monster” and depicting him as a “villain” and a “bad guy.” Lawyers brought out testimony about his sex life and showed photos of him “looking awkward with celebrities,” Cohen said.
He said Bankman-Fried would talk to just about anyone who would listen, behavior that could make life messy but isn’t criminal. He said the prosecution has made the case into a “movie,” and the defense is showing what it’s like in the real world, where things are messy.
“Every movie needs a villain,” Cohen said.
He claimed the case against his client was built on the false premise that FTX was a fraudulent enterprise to intentionally steal customer funds.
Cohen broke the case up into two time periods. The first was 2019 to 2021, when there’s no indication of criminal intent. Up until June 2022, everyone involved thought they were operating the most successful crypto exchange in the world, Cohen said.
The second period was from June to November of 2022. Crypto winter had led to the failure of a number of businesses in the industry. That’s the first time it became clear that Alameda was using customer funds. In the fall of that year, Bankman-Fried saw a liquidity problem, not a solvency problem, Cohen said. He always thought there were sufficient funds on and off the exchange.
While FTX’s lack of a risk management system or chief risk officer reflected poor system controls, bad business decisions aren’t crimes, Cohen said.
The government carries the heavy burden of proving Bankman-Fried operated with criminal intent, and “it has not,” Cohen said. He said that prosecutors called Bankman-Fried “evil” and “arrogant” and described him as a “criminal mastermind.” But in getting into specific actions, “there’s nothing wrongful about margin trading,” he said.
Cohen said his client provided the court with good faith answers about what he remembered, and asked why a criminal mastermind would go speak in front of Congress. He described the government’s assumptions as “heads I win, tales you lose.”
Cohen told the jury that if any members of Bankman-Fried’s inner circle truly thought something nefarious was happening, they had options, including resigning, leaving the Bahamas or “blowing the whistle.” None of them did, he said.
During much of Cohen’s closing, Bankman-Fried had his head awkwardly turned to the right toward the jury box. Near the end, he was looking down, fighting back tears.
Court adjourned late Wednesday after Cohen finished with his closing argument. The government will get its shot at rebuttal Thursday morning, and then the jury will get its instructions ahead of deliberations.
Judge Kaplan said he wasn’t rushing jurors, but he said he was willing to stay late Thursday and that the government would cover dinner and likely give jurors a free ride home.
Former FTX Chief Executive Sam Bankman-Fried, who faces fraud charges over the collapse of the bankrupt cryptocurrency exchange, walks outside the Manhattan federal court in New York City, U.S. March 30, 2023.
Amanda Perobelli | Reuters
FTX founder Sam Bankman-Fried told jurors in his criminal trial on Friday that he didn’t commit fraud, and that he thought the crypto exchange’s outside expenditures, like paying for the naming rights at a sports arena, came out of company profits.
On Friday morning, defense attorney Mark Cohen asked Bankman-Fried if he defrauded anyone.
“No, I did not,” Bankman-Fried responded.
Cohen followed by asking if he took customer funds, to which Bankman-Fried said “no.”
Bankman-Fried, 31, faces seven criminal counts, including wire fraud, securities fraud and money laundering, that could land him in prison for life if he’s convicted. Bankman-Fried, the son of two Stanford legal scholars, has pleaded not guilty in the case.
Prior to the defendant’s appearance on the stand, the four-week trial was highlighted by the testimony of multiple members of FTX’s top leadership team as well as the people who ran sister hedge fund Alameda Research. They all singled out Bankman-Fried as the mastermind of a scheme to use FTX customer money to fund everything from venture investments and a high-priced condo in the Bahamas to covering Alameda’s crypto losses.
Courtroom sketch showing Sam Bankman Fried questioned by his attorney Mark Cohen. Judge Lewis Kaplan on the bench
Artist: Elizabeth Williams
Prosecutors walked former leaders of Bankman-Fried’s businesses through specific actions taken by their boss that resulted in clients losing billions of dollars last year. Several of the witnesses, including Bankman-Fried’s ex-girlfriend Caroline Ellison, who ran Alameda, have pleaded guilty to multiple charges and are cooperating with the government.
On Friday, Bankman-Fried acknowledged that one of his biggest mistakes was not having a risk management team. That led to “significant oversights,” he said.
At the start of his testimony, Cohen walked Bankman-Fried through his background and how he got into crypto. The defendant said he studied physics at the Massachusetts Institute of Technology and graduated in 2014. He then worked as a trader on the international desk at Jane Street for over three years, managing tens of billions of dollars a day in trading. That’s where he learned the fundamentals of things like arbitrage trading.
In the fall of 2017, Bankman-Fried founded Alameda Research.
“This was when crypto was starting to become publicly visible for the first time,” Bankman-Fried testified.
He said people were excited about it, watching bitcoin, which had jumped from $1,000 to $10,000 in a two-month period. Banks and brokers weren’t involved yet and it seemed like there would probably be big demand for an arbitrage provider, he said.
“I had absolutely no idea” how cryptocurrencies worked, Bankman-Fried said. “I just knew they were things you could trade.”
The first Alameda office was in an Airbnb in Berkeley, California, he said. It was listed as a two bedroom but they used the couch in the living room as a third bed and also repurposed the attic as a fourth bedroom.
He started FTX in 2019. Trading volume grew substantially on FTX from a few million dollars a day to tens of millions of dollars that year to hundreds of millions of dollars in 2020. By 2022, that number was up to $10 billion to $15 billion per day in trading volume, he said.
Bankman-Fried said Alameda was permitted to borrow from FTX, but his understanding was that the money was coming from margin trades, collateral from other margin trades or assets earning interest on the platform.
At FTX, there were no general restrictions on what could be done with funds that were borrowed as long as the company believed assets were greater than liabilities, Bankman-Fried testified.
In 2020, a routine liquidation gone wrong led to some of the special borrowing permissions at Alameda, he said. The risk engine was sagging under the weight of growth. A liquidation that should have been in the thousands of dollars was in the trillions of dollars. Alameda was suddenly underwater because of closing the position.
The incident exposed a larger concern, that the potential of an erroneous liquidation of Alameda could be disastrous for users.
Bankman-Fried said he talked to FTX’s engineering director Nishad Singh and co-founder Gary Wang, both of whom testified earlier on behalf of the prosecution. He suggested creating an alert, which would prompt the user to deposit more collateral, or a delay, Bankman-Fried said. In response to this feedback, Singh and Wang told Bankman-Fried they had implemented a feature like that, he said, adding that he later learned it was the “allow negative” feature.
Bankman-Fried testified that he wasn’t aware of the amount Alameda was borrowing or its theoretical max. As long as Alameda’s net asset value was positive and the scale of borrowing was reasonable, increasing its line of credit from so that Alameda could keep filling orders was fine, he said. Earlier testimony from Singh and Wang suggested the line of credit was raised to $65 billion, a number Bankman-Fried said he was not aware of.
Convincing the jury will be a tall order for Bankman-Fried after a mountain of damning evidence was presented by the government.
Prosecutors entered corroborating materials, including encrypted Signal messages and other internal documents that appear to show Bankman-Fried orchestrating the spending of FTX customer money.
The defense’s case, which consists of Bankman-Fried’s testimony along with that of two witnesses who took the stand Thursday morning, hinges largely on whether the jury believes the defendant didn’t intend to commit fraud.
The logo of FTX is seen on a flag at the entrance of the FTX Arena in Miami, Florida, November 12, 2022.
Marco Bello | Reuters
In Friday afternoon testimony, Bankman-Fried was asked about FTX’s marketing and promotions.
He said there were 15 people on the marketing team, and noted that he got more involved with it as time progressed. In particular, he discussed the naming rights in 2021 for the basketball arena in Miami, which was to be a 19-year deal for $135 million.
Bankman-Fried said the sponsorship of FTX Arena would deliver returns for the company and create wide brand awareness because even he, as an “average level sports fan,” could name dozens of stadiums. He said the investment would be about $10 million a year, or 1% of revenue. The company had been deciding among a few different stadiums, including the homes to the NFL’s New Orleans Saints and Kansas City Chiefs, Bankman-Fried said.
A crucial part of his testimony came when Bankman-Fried said he thought the stadium deal funding was coming from revenue from the exchange and returns from venture investments, as opposed to customer money.
Similarly, Bankman-Fried testified that he believed the lavish Bahamas properties were being paid for with FTX operating cash that came from revenue and venture investments. He said having available property to rent was a necessary incentive if the company wanted to poach developers from Facebook and Google.
As for the venture investments, Bankman-Fried said he thought that money was coming from Alameda’s operating profits and third-party lending desks. Alameda’s venture arm was renamed Clifton Bay Investments, which Bankman-Fried said was a first step in building a dedicated venture brand.
When asked about loans he took from the business, Bankman-Fried said they were to pay for venture investments and political donations. He said that, as the primary owner of Alameda, he thought he had a few billion dollars in arbitrage profit from the past few years and there was no reason he couldn’t borrow from it. He said the loans, except for the most recent one prior to the firm’s bankruptcy filing, were all documented through promissory notes.
Bankman-Fried said he never directed Singh or former FTX executive Ryan Salame to make political donations. Salame pleaded guilty in September to federal campaign finance and money-transmitting crimes, admitting that from fall 2021 to November 2022, he steered tens of millions of dollars of political contributions to both Democrats and Republicans in his own name when the money actually came from Alameda.
Bankman-Fried, who allegedly used FTX customer funds to help finance over $100 million in political giving during the 2022 midterms, testified that he talked to politicians about pandemic prevention and crypto regulation. He said he had a vested interested in crypto policy even though FTX’s U.S. operation was relatively small, because the company was seeking to offer crypto futures products in the U.S.
Bankman-Fried then discussed his public persona. He said he hadn’t intended to be the public face of the company because he’s “naturally introverted.” But a few interviews went well, and it snowballed from there. He said he was the only person at the company that the press sought.
He wore T-shirts and shorts because they were comfortable and said he let his hair grow out because he was busy and lazy.
Bankman-Fried was photographed at the 2022 Super Bowl in Los Angeles with Katy Perry. He told the jury, which was previously presented with the photo by the prosecution, that he thought it was natural to go to the game because he was in town for meetings and the company had a commercial running.
“I thought maybe it would be interesting,” he said.
The afternoon testimony largely focused on Bankman-Fried’s repeated and unsuccessful request to Ellison that she hedge Alameda’s risk. Bankman-Fried said in late 2021, he had talked to Ellison about putting on trades to protect against the risk of market moves since Alameda had been leveraged long, meaning they would lose money if the market went down.
Ellison said she would look into it, which Bankman-Fried said he “interpreted” as her being “far less enthusiastic about it.” Over the course of 2022, Bankman-Fried said every two months he would check in to see if Alameda had hedged, and each time he was told not yet, but Ellison would say she was planning to do so in the near future.
Specifically, Bankman-Fried said he had talked with Ellison and Ramnik Arora, who had been the head of product at FTX, about putting a $2 billion hedge on the company’s investment in Genesis Digital Assets, a bitcoin miner. He told the jury that the hedge was never made.
There was also more detail on how Bankman-Fried was told about FTX’s $8 billion liability. According to the defendant, in October 2022, developers built a Google database that included financial data. That’s where Bankman-Fried noticed the negative $8 billion balance, which he said he was “very surprised” to see.
Cohen then brought the jury through the summer months of 2022, a time when Alameda’s lenders, specifically Genesis, BlockFi, Celsius and Voyager, all had direct conversations with Bankman-Fried about the need for emergency capital. In the end, only BlockFi and Voyager received funds from Alameda and Bankman-Fried.
In late 2021 and early 2022, Bankman-Fried said he wanted FTX revenue to be above $1 billion because it was a round number. He asked company executives if there were ways to reach that mark. Singh said he’d dealt with it by staking the company’s investment in crypto token Serum, a way of putting the coins to work. That had added another $50 million in revenue. Bankman-Fried testified that he was “a little surprised” they found that additional money, but it got him to $1 billion.
McCormick spices are displayed on a shelf at a supermarket on March 28, 2023 in San Anselmo, California. Spice Maker McCormick reported better-than-expected first quarter earnings with revenues of $1.57 billion compared to $1.52 billion one year ago.
Check out the companies making headlines in midday trading.
Warby Parker — The eyewear maker popped 6% after Evercore ISI upgraded shares to outperform from in line. The firm said 2024 should be a “fundamental inflection year” for Warby Parker.
Trex — Shares of the wood-alternative decking manufacturer declined by 3.9% even after Goldman Sachs initiated Trex with a buy rating. The bank said the company is “well-positioned” to drive growth and profitability.
Eli Lilly, Point Biopharma — Eli Lilly shares slumped 3.7% after the pharmaceutical giant announced plans to purchase cancer therapy developer Point Biopharma for $12.50 a share in cash, or about $1.4 billion. Point Biopharma shares surged more than 85%.
Rivian Automotive — Shares of the electric vehicle maker lost 5%, even though Rivian’s deliveries topped estimates and showed sustained demand. Morgan Stanley earlier reiterated the company as overweight, saying the Rivian’s FY23 production guide of 52,000 units supports the firm’s delivery forecast of 48,000 units. Concerns remain about softening demand for EVs in the U.S. due to higher borrowing costs.
Airbnb — The short-term vacation rental company fell more than 5% after KeyBanc downgraded the stock to sector weight from overweight. KeyBanc said that AirBnb’s margins will be squeezed as post-pandemic travel demand eases.
McCormick — Shares of the spice maker slipped 9% after McCormick reported earnings of 65 cents per share, excluding items, for the recent quarter on revenues of $1.68 billion. That came in roughly in line with the earning-per-share of 65 cents and $1.7 billion in revenue expected by analysts polled by StreetAccount.
Meta — Shares of the social media behemoth slipped more than 2% following news that the company is considering charging European Union Facebook and Instagram users a $14 monthly fee to access both platforms without ads.
Fiverr International — Shares gained 2% after Roth MKM upgraded the company to buy from neutral. The Wall Street firm is “incremental positive” on the stock, citing a freelancer survey that supports Fiverr’s leading position among gig workers.
Sequoia Capital and Andreessen Horowitz, two of Silicon Valley’s most high-profile venture firms, are poised to take a massive hit on their last investment in grocery delivery company Instacart, a deal that closed in 2021 as tech stocks were soaring.
In its latest IPO prospectus update, filed Friday, Instacart said it plans to sell shares at $28 to $30 apiece, valuing the company at around $10 billion at the top of the range.
That’s more than 75% below where Sequoia and Andreessen invested in early 2021. At that time, Instacart sold shares at $125 a piece for a $39 billion valuation. The delivery economy was booming because of Covid shutdowns, and Instacart’s services were seeing record demand.
“This past year ushered in a new normal, changing the way people shop for groceries and goods,” Instacart finance chief Nick Giovanni said in a press release at the time.
In the more than two years since then, Instacart and its investors have learned that growth during that period was anything but normal. Instacart was closing out a quarter in which revenue surged 200%. In the quarter before, sales jumped almost sevenfold. Instacart said it was preparing to increase head count by 50% and bolster investment in advertising.
Sequoia’s Mike Moritz, who led his firm’s investment and recently announced his departure after 38 years, said in the same press release that Instacart was “fulfilling its role as a vital service for consumers, a reliable partner for retailers and an effective platform for advertisers.” Fidelity, T. Rowe Price and D1 Capital Partners also participated in that financing round.
Then the economy reopened, inflation spiked and the Federal Reserve started boosting interest rates, which hovered near zero throughout Covid. Consumers started shopping again in person on tightened budgets, and with capital costs jumping, investors began demanding that cash-burning companies find a path to profitability. Last year, the Nasdaq suffered its steepest drop since the 2008 financial crisis.
It’s also true that venture firms haven’t seen any real returns from IPOs since before the 2022 market collapse. The dearth of exits is particularly stark because VCs invested record amounts of capital in 2020 and 2021, including deals at high valuations in areas such as crypto and fintech.
Even with the changing market conditions, Instacart has continued to grow but at a dramatically slower pace. Revenue increased 15% in the latest quarter from the year prior, and operating expenses have come down over that time, allowing the company to turn profitable.
From a valuation perspective, the bigger issue is that Instacart raised the $39 billion round during a record stretch of tech IPOs, and just a couple of months after fellow sharing-economy companies Airbnb and DoorDash had blockbuster offerings.
There hasn’t been a notable venture-backed tech IPO in the U.S. since late 2021, and Instacart and Klaviyo are the only two that have publicly filed recently. Car-sharing service Turo is also on file, but its initial prospectus came out in early 2022.
Fortunately for Sequoia and Andreessen, they began investing in Instacart when the company was in its early days and the stock price was much lower than it is today. Assuming the stock price holds up, there’s still considerable money to be made for limited partners. Because of the lock-up period, the firms can’t begin selling shares until 180 days after the offering.
Sequoia is the largest investor in Instacart, with a 15% stake on a fully diluted basis. The 400,000 shares it purchased in 2021 are a small sliver of the 51.2 million shares it owns. In total, the firm has invested about $300 million for a stake that would be worth over $1.5 billion at the top of the range.
Sequoia led Instacart’s $8.5 million Series A round in 2013, when the price was just 24 cents a share, according to the prospectus. Andreessen led the next round at $2.98, and Sequoia participated. Both firms were in the Series C at $13.31 a share and the Series D at $18.52.
Because Andreessen’s total ownership is below 5%, its full stake isn’t disclosed in the prospectus.
Representatives from Sequoia and Andreessen declined to comment.
Not until 2020 did Instacart’s share price climb to around where it is today, in a $200 million round led by Valiant Peregrine Fund and D1. Neither Sequoia nor Andreessen participated in that round.
Even if Instacart’s IPO can’t lift its valuation anywhere near its Covid-era peak, it’s likely that Sequoia, Andreessen and other venture firms are hoping it helps lift public investor enthusiasm for new tech stocks. Arm, which was taken private by SoftBank in 2016, reentered the public market on Thursday and jumped 25% in its debut.
Check out the companies making headlines in midday trading.
Best Buy — Shares popped nearly 6% after the retailer’s fiscal second-quarter earnings beat on both the top and bottom lines. Adjusted earnings per share came in at $1.22, versus the $1.06 expected from analysts polled by Refintiv. Revenue was $9.58 billion, topping the consensus estimate of $9.52 billion. However, Best Buy lowered the top end of its revenue outlook for the year.
Big Lots — The discount retailer surged 26.7% after its earnings report came in better than analysts expected. Big Lots lost $3.24 per share, on an adjusted basis, less than the $4.11 forecasted by analysts surveyed by FactSet. Revenue exceeded the consensus estimate of $1.1 billion, coming in at $1.14 billion.
Coinbase, Marathon Digital, Riot Platforms — Stocks tied to the cryptocurrency industry soared after a court ruled against the Securities and Exchange Commission in a lawsuit about spot bitcoin ETFs. Shares of Coinbase, which is named as a custodial partner in several proposed bitcoin ETFs, jumped 13%. Bitcoin mining stocks also rose, with Marathon Digital surging 24% and Riot Platforms climbing 15%.
3M — Shares gained 2.6% after the company agreed to settle lawsuits regarding potentially defective U.S. military earplugs for $6.01 billion. The deal had grown into the largest mass tort litigation in U.S. history.
Heico — The engine and aircraft part maker retreated 3.1%. Despite beating expectations for revenue in the quarter, the company said its operating margin fell when compared with the same quarter a year ago.
Nvidia — The artificial intelligence stock rallied 4%, part of a broader ascent among technology stocks in Tuesday’s session. Morgan Stanley reiterated its overweight rating on the stock, noting its strong earnings report last week can be a positive signal for the AI supply chain.
PDD Holdings — U.S.-listed shares jumped 17.8%. The Chinese e-commerce company beat Wall Street expectations when reporting second-quarter earnings. It noted a positive shift in consumer sentiment during the quarter.
Oracle — Software giant Oracle climbed 2.9% following an upgrade from UBS to buy from neutral. UBS said the stock could have upside ahead due to tailwinds tied to artificial intelligence.
AT&T, Verizon — The telecommunication giants each added 2.3% on the back of a Citi upgrade to buy. The firm cited stabilization in the wireless environment and said the stocks’ valuations may be over-discounting potential costs tied to mitigating lead-covered cables.
Alphabet, General Motors — Google Cloud and General Motors said Tuesday they’re working together to explore artificial intelligence opportunities across the automaker’s business. Following the announcement, shares of Google Cloud’s parent company Alphabet and General Motors rose 3.5% and 0.6%, respectively, during midday trading.
Catalent — Catalent jumped more than 5% after the biotech company issued a solid revenue outlook and announced a deal with activist investor Elliott Investment Management. For fiscal 2024, Catalent forecasted revenue in the range of $4.30 billion to 4.50 billion, far above the $4.19 billion expected by analysts polled by FactSet. Additionally, Catalent agreed to name four new independent directors to its board, two of whom will be nominated by Elliott. It also agreed to a review of its business and strategy.
Ginkgo Bioworks — The biotechnology company’s stock popped more than 18% after announcing a five-year cloud and AI partnership with Google Cloud. As part of the deal, Ginkgo Bioworks will work to create new large language models for biology and biosecurity uses. Alphabet shares were last up more than 3%.
Rockwell Automation — The industrial stock gained nearly 2% after Wells Fargo upgraded the stock to equal weight from underweight. The Wall Street firm said it’s bullish on Rockwell’s earnings growth potential.
Airbnb — The vacation booking platform climbed 4.8%. Bernstein reiterated its outperform rating and said investors should buy the stock after a recent pullback in share prices.
Palantir – The software stock surged more than 5%. Bank of America reiterated its buy rating on Palantir, calling the company a “key player” in implementing secure AI despite the recent share pullback.
Splunk — Shares of the software company added 1.8% on Tuesday after Jefferies named the company a top pick in a Tuesday note. Jefferies said Splunk is now in position to deliver “mid-teens” increases in annual revenue after a management overhaul that began 18 months ago.
Futu Holdings — The Asian wealth management stock popped 10% following a double-upgrade to buy from underperform by Bank of America. The Wall Street bank said to expect more growth in overseas markets.
NextEra Energy Partners — The energy stock advanced 3.7% on the back of an upgrade from Raymond James to outperform from market perform. Raymond James said investors should buy the dip on the stock.
— CNBC’s Sarah Min, Samantha Subin, Yun Li, Hakyung Kim, Michelle Fox, Pia Singh and Jesse Pound contributed reporting
Instacart, the grocery delivery company that slashed its valuation during last year’s market slide, filed its paperwork to go public on Friday in what’s poised to be the first significant venture-backed tech IPO since December 2021.
The stock will be listed on the Nasdaq under the ticker symbol “CART.” In its prospectus, the company said net income totaled $114 million, while revenue in the latest quarter hit $716 million, a 15% increase from the year-ago period. Instacart has now been profitable for five straight quarters, according to the filing. PepsiCo has agreed to purchase $175 million of the company’s stock in a private placement.
Instacart said it will continue to focus on incorporating artificial intelligence and machine learning features into the platform, and that the company expects to “rely on AIML solutions to help drive future growth in our business.” In May, Instacart said it was leaning into the generative AI boom with Ask Instacart, a search tool that aims to answer customers’ grocery shopping questions.
“We believe the future of grocery won’t be about choosing between shopping online and in-store,” CEO Fidji Simo wrote in the prospectus. “Most of us are going to do both. So we want to create a truly omni-channel experience that brings the best of the online shopping experience to physical stores, and vice versa.”
Instacart will try and crack open the IPO market, which has been mostly closed since late 2021. In December of that year, software vendor HashiCorp and Samsara, which develops cloud technology for industrial companies, went public, but there haven’t been any notable venture-backed tech IPOs since. Chip designer Arm, which is owned by Japan’s SoftBank, filed for a Nasdaq listing on Monday.
Founded in 2012 and initially incorporated as Maplebear Inc., Instacart will join a crop of so-called gig economy companies on the public market, following the debut in 2020 of Airbnb and DoorDash and car-sharing companies Uber and Lyft a year earlier. They’ve not been a great bet for investors, as only Airbnb is currently trading above its IPO price.
Instacart shoppers and drivers deliver goods in over 5,500 cities from more than 40,000 grocers and other stores, according to its website. The business took off during the covid pandemic as consumers avoided public places. But profitability has always been a major challenge, as it is across much of the gig economy, because of high costs associated with paying all those contractors.
Headcount peaked in the second quarter of 2022, Instacart said, “and declined over the next two quarters, reducing our fixed operating cost base.” At the end of June, the company had 3,486 full-time employees.
In March of last year, Instacart slashed its valuation to $24 billion from $39 billion as public stocks sank. The valuation reportedly fell by another 50% by late 2022. Instacart listed Amazon, Target, Walmart and DoorDash among its competitors.
The biggest area for cost reductions has been in general and administrative expenses. Those costs shrank to $51 million in the latest quarter from $77 million a year earlier and a peak of $102 million in the final period of 2021. Instacart said the drop was the “result of lower fees related to legal matters and settlements.”
Simo took over as Instacart’s CEO in August 2021 and became chair of the company’s board in July 2022. She was previously head of Facebook’s app at Meta and reported directly to CEO Mark Zuckerberg. Apoorva Mehta, Instacart’s founder and executive chairman, plans to transition off the board after the company’s public market debut, according to a 2022 release.
The company’s board also includes Peloton CEO Barry McCarthy, Snowflake CEO Frank Slootman and Andreessen Horowitz’s Jeff Jordan.
Instacart will be one of the first independent grocery delivery companies to go public. Amazon Fresh, Walmart Grocery and Google Express are all units of large corporations. Shipt was acquired by Target in 2017 and Fresh Direct, another direct-to-consumer grocery delivery company, was bought by global food retailer Ahold Delhaize in 2021.
Sequoia Capital and D1 Capital Partners are the only shareholders owning at least 5% of the stock. Instacart said those two firms, along with Norges Bank Investment Management and entities affiliated with TCV and Valiant Capital Management, have “indicated an interest, severally and not jointly” in purchasing up to $400 million of shares in the IPO at the offering price.
Instacart’s move into AI has come largely through a string of acquisitions in the past two years. Those deals include the purchase of e-commerce startup Rosie, AI-powered pricing firm Eversight, AI shopping cart and checkout solutions provider Caper, and FoodStorm, a software startup specializing in self-serve kiosks for in-store customers.
The company also touted its use of machine learning in predicting grocery availability for retailers and increasing consumer sales. It said its algorithms predict availability every two hours for the “large majority” of its 1.4 billion grocery items, and that more than 70% of customers purchased items through Instacart’s recommendation algorithm in the second quarter of 2023.
Goldman Sachs is leading the offering. That’s the former employer of Instacart finance chief Nick Giovanni, who was previously global head of the tech, media and telecom group at the investment bank.
In the real world, it would be pretty expensive to live like Barbie — especially when it comes to housing.
Consider Airbnb’s life-size Barbie Dreamhouse rental in Malibu, an all-pink mansion decked out in Barbie décor, for example. Although the listing is no longer accepting bookings, guests who did manage to snag a stay will get to live like Barbie for a night, free of charge.
But if you wanted to buy the multistory property, you’d probably need millions of dollars and a credit score of at least a 750 to get it, Tony Mariotti, CEO of RubyHome, a Malibu-based luxury real estate company, tells CNBC Make It.
That’s a pretty high credit score; any score between 740 and 799 qualifies as “very good,” according to Experian. It’s just one step down from “exceptional.”
While the oceanfront estate is privately owned and isn’t actively for sale, several real estate companies have given varying estimates of what it may be worth.
RubyHome estimates the pink mansion is worth about $10 million, Mariotti says. However, Zillow prices the home at about $5.3 million and Redfin estimates it would run you about $3.3 million.
Don’t panic if your credit score isn’t high enough to buy a property like Barbie’s Malibu Dreamhouse.
The typical score you need to buy a home is much lower, usually ranging between 500 and 700, according to Experian. The exact score you need depends on the type of mortgage loan you’re trying to get and the lender you choose.
For a conventional loan, which you would typically get from a bank and isn’t backed by a government agency, you would need a minimum credit score of 620, according to Experian. However, some lenders may require a minimum of 660 or higher.
Some potential buyers may want to consider a Federal Housing Administration loan, which is a mortgage loan insured by the U.S. Department of Housing and Urban Development. If you have a credit score of 580 or higher, you may be able to get an FHA mortgage with a down payment as low as of 3.5% of the cost of the home.
If you can make a 10% down payment, you could qualify for an FHA loan with a credit score between 500 and 579.
It’s important to note that all FHA loans require you to pay a mortgage insurance premium, which is similar to private mortgage insurance on conventional loans, regardless of the down payment amount. Additionally, FHA loans tend to have lower limits and can only be used for a primary residence.
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Car-sharing service Turo filed its IPO prospectus in January 2022. A month earlier, Reddit said it submitted a draft registration for a public offering. Instacart’s confidential paperwork was filed in May of last year.
None of them have hit the market yet.
Despite a bloated pipeline of companies waiting to go public and a rebound in tech stocks that pushed the Nasdaq up 30% in the first half of 2023, the IPO drought continues. There hasn’t been a notable venture-backed tech initial public offering in the U.S. since December 2021, when software vendor HashiCorp debuted on the Nasdaq.
Across all industries, only 10 companies raised $100 million or more in U.S. initial share sales in the first six months of the year, according to FactSet. During the same stretch in 2021, there were 517 such transactions, highlighted by billion-dollar-plus IPOs from companies including dating site Bumble, online lender Affirm, and software developers UiPath and SentinelOne.
As the second half of 2023 gets underway, investors and bankers aren’t expecting much champagne popping for the rest of the year.
Many once high-flying companies are still hanging onto their old valuations, failing to reconcile with a new reality after a brutal 2022. Additionally, muted economic growth has led businesses and consumers to cut costs and delay software purchases, which is making it particularly difficult for companies to comfortably forecast the next couple of quarters. Wall Street likes predictability.
So if you’re waiting on a splashy debut from design software maker Canva, ticket site StubHub or data management company Databricks, be patient.
“There’s a disconnect between valuations in 2021 and valuations today, and that’s a hard pill to swallow,” said Lise Buyer, founder of IPO consultancy Class V Group in Portola Valley, California. “There will be incremental activity after a period of absolute radio silence but it isn’t like companies are racing to get out the door.”
The public markets tell an uneven story. This year’s rally has brought the Nasdaq to within 15% of its record from late 2021, while an index of cloud stocks is still off by roughly 50%.
Some signs of optimism popped up this month as Mediterranean restaurant chain Cava went public on the New York Stock Exchange. The stock more than doubled on its first day of trading, indicating high demand from retail investors. Buyer noted that institutions were also enthused about the deal.
Last Friday, Israeli beauty and tech company Oddity, which runs the Il Makiage and Spoiled Child brands, filed to go public on the Nasdaq.
That all comes after a big month for secondary offerings. According to data from Goldman Sachs, May was the busiest month for public stock sales since November 2021, driven by a jump in follow-on deals.
While investors are craving new names, they’re much more discerning when it comes to technology than they were at the tail end of the decade-long bull market.
Mega-cap stocks Apple and Nvidia have seen outsized gains this year and are back to trading near all-time highs, boosting the Nasdaq because of their hefty weightings in the index. But the advances are not evenly spread across the industry.
In particular, investors who bet on less mature businesses are still hurting. The companies that held the seven-biggest tech IPOs in the U.S. in 2021 have lost at least 40% of their value since their debut. Coinbase, which went public through a direct listing, is down more than 80%.
That year’s IPO class featured high-growth businesses with even higher cash burn, an equation that worked fine until recession concerns and rising interest rates pushed investors into assets better positioned to withstand an economic slowdown and increased capital costs.
Employees of Coinbase Global Inc, the biggest U.S. cryptocurrency exchange, watch as their listing is displayed on the Nasdaq MarketSite jumbotron at Times Square in New York, April 14, 2021.
Shannon Stapleton | Reuters
Bankers and investors tell CNBC that optimism is picking up, but ongoing economic concerns and the valuation overhang from the pre-2022 era set the stage for a quiet second half for tech IPOs.
One added challenge is that fixed income alternatives are back. Following a lengthy stretch of near-zero interest rates, the Federal Reserve this year lifted its target rate to between 5% and 5.25%. Parking money in short-term Treasurys, certificates of deposit and high-yield savings offerings can now generate annual returns of 5% or more.
“Interest rates are not only about the cost of financing, but also getting investors to trade out of 5% risk-free returns,” said Jake Dollarhide, CEO of Longbow Asset Management. “You can make 15%-20% in the stock market but lose 15%-20%.”
Dollarhide, whose firm has invested in milestone tech offerings like Google and Facebook, says IPOs are important. They offer more opportunities for money managers, and they generate profits for the tech ecosystem that help fund the next generation of innovative companies.
But he understands why there’s skepticism about the window reopening. Perhaps the biggest recent bust in tech investing followed the boom in special purpose acquisition companies (SPACs), which brought scores of less mature companies to the public market through reverse mergers.
“It seems the foul odor of failure from the 2021 SPAC craze has spoiled the appetite from investors seeking IPOs,” Dollarhide said. “I think that’s done some harm to the traditional IPO market.”
Private markets have felt the impact. Venture funding slowed dramatically last year from record levels and has stayed relatively suppressed, outside of the red-hot area of artificial intelligence. Companies have been forced to cut staff and close offices in order to preserve cash and right-size their business
Pre-IPO companies like Stripe, Canva and Klarna have taken huge hits to their valuations, either through internal measures or markdowns from outside investors.
Few have been hit as hard as Instacart, which has repeatedly slashed its valuation, from a peak of $39 billion to as low as $10 billion in late 2022. Last year, the company confidentially registered for an IPO, but still hasn’t filed publicly and doesn’t have immediate plans to do so.
Similarly, Reddit said in December 2021 that it had confidentially submitted a draft registration statement to go public. That was before the online ad market took a dive, with Facebook suffering through three straight quarters of declining revenue and Google’s ad sales also slipping.
Now Reddit is in the midst of a business model shift, moving its focus beyond ads and toward generating revenue from third-party developers for the use of its data. But that change sparked a protest this month across a wide swath of Reddit’s most popular communities, leaving the company with plenty to sort through before it can sell itself to the public.
A Reddit spokesperson declined to comment.
Turo was so close to an IPO that it went beyond a confidential filing and published its full S-1 registration statement in January 2022. When stocks sold off, the offering was indefinitely delayed. To avoid withdrawing its filing, the company has to continue updating its quarterly results.
Like Instacart, Turo operates in the sharing economy, a dark spot for investors last year. Airbnb, Uber and DoorDash have all bounced back in 2023, but they’ve also instituted significant job cuts. Turo has gone in the opposite direction, more than doubling its full-time head count to 868 at the end of March from 429 at the time of its original IPO filing in 2021, according to its latest filing. The company reportedly laid off about 30% of its staff in 2020, during the Covid pandemic.
Turo and Instacart could still go public by year-end if market conditions continue to improve, according to sources familiar with the companies who asked not to be named because they weren’t authorized to speak publicly on the matter.
Byron Deeter, a cloud software investor at Bessemer Venture Partners, doesn’t expect any notable activity this year, and says the next crop of companies to debut will most likely wait until after showing their first-quarter results in 2024.
“The companies that were on file or were considering going out a little over a year ago, they’ve pulled, stopped updating, and overwhelmingly have no plans to refile this calendar year,” said Deeter, whose investments include Twilio and HashiCorp. “We’re 10 months from the real activity picking up,” Deeter said, adding that uncertainty around next year’s presidential election could lead to further delays.
In the absence of IPOs, startups have to consider the fate of their employees, many of whom have a large amount of their net worth tied up in their company’s equity, and have been waiting years for a chance to sell some of it.
Stripe addressed the issue in March, announcing that investors would buy $6.5 billion worth of employee shares. The move lowered the payment company’s valuation to about $50 billion from a high of $95 billion. Deeter said many late-stage companies are looking at similar transactions, which typically involve allowing employees to sell around 20% of their vested stock.
He said his inbox fills up daily with brokers trying to “schlep little blocks of shares” from employees at late-stage startups.
“The Stripe problem is real and the general liquidity problem is real,” Deeter said. “Employees are agitating for some path to liquidity. With the public market still pretty closed, they’re asking for alternatives.”
G Squared is one of the venture firms active in buying up employee equity. Larry Aschebrook, the firm’s founder, said about 60% of G Squared’s capital goes to secondary purchases, helping companies provide some level of liquidity to staffers.
Aschebrook said in an interview that transactions started to pick up in the second quarter of last year and continued to increase to the point where “now it’s overwhelming.” Companies and their employees have gotten more realistic about the market reset, so significant chunks of equity can now be purchased for 50% to 70% below valuations from 2021 financing rounds, he said.
Because of nondisclosure agreements, Aschebrook said he couldn’t name any private company shares he’s purchased of late, but he said his firm previously bought pre-IPO secondary stock in Pinterest, Coursera, Spotify and Airbnb.
“Right now there’s a significant need for that release of pressure,” Aschebrook said. “We’re assisting companies with elongating their private lifecycle and solving problems presented by staying private longer.”
Nick Gerli, Reventure Consulting Founder and CEO, joins ‘Last Call’ to explain his recent viral tweet claiming AirBnB is seeing declining revenue in several major markets.
While some companies are pulling back on flexibility, others, like Airbnb and Pinterest, are celebrating one year since permanently switching to remote or hybrid work.
Even as the number of remote job opportunities dwindles, demand for flexible work remains high: Nearly half of employees want more flexibility in where and when they work, according to a January 2023 report from Monster, which surveyed more than 1,000 workers.
That being said, the remote job market has gotten more competitive. Yelp, for example, has seen a 200% increase in the number of applicants per general and administrative job posting since the company went fully remote in 2022, compared to 2019, the company said earlier this year.
Tech, marketing and health care are among the top industries hiring for remote and hybrid jobs in 2023, according to FlexJobs. Many companies in these industries have adopted either remote-first or trust-based approaches that see employees working from home full-time or choosing when, and how, they join their team in the office.
Here are 10 companies that switched to a permanent flexible work model and are hiring now:
Remote work plans: HubSpot employees have three flexible work options: @office, which means coming into the office 3 days or more per week; @flex, which means coming into the office 2 days or fewer each week; or @home, which means working remotely. The program, which started in 2021, also lets employees change their choice once per year.
Remote work plans: Reddit switched to a permanent hybrid model in October 2020 where employees have the flexibility to work wherever they want, with options for in-office work.
Remote work plans: Spotify’s “Work From Anywhere” program, which launched in February 2021, offers remote, in-person and hybrid options for employees as well as more flexible living choices if an employee wants to move. For example: Spotify has offered to pay for a co-working membership if someone re-locates to a neighborhood that isn’t near a Spotify office and misses in-person work.
Remote work plans: Under Airbnb’s “live and work anywhere” model, which began in April 2022, employees can work remotely or from one of Airbnb’s offices. Employees also have the choice to work for up to three months a year from over 170 countries.
Remote work plans: Dropbox’s “virtual first” program, launched in April 2021, sees employees working at least 90% of the time remotely and only asked to come into the office for occasional group gatherings, like happy hours and special educational sessions.
Remote work plans: Allstate employees can choose whether they work from home, in the office or a combination of both, a flexible work arrangement that has been in place since early 2020.
Remote work plans: Pinterest employees can work in all 50 states within the U.S. or within the country or region of their Pinterest office if they are international employees under the company’s “PinFlex” model, which was introduced in April 2022.
All employees are expected to visit a Pinterest office at least once a year for “culture building” activities, per the company’s website.
Additionally, all full-time employees who have worked at Pinterest for at least six months can work outside of their country of employment for up to nine months each year (three months per country). Employees with less than six months’ tenure can do this for up to 30 days total.
Remote work plans: Instacart’s “Flex First” model, which was announced in May 2022, allows more than 70% of its corporate employees to choose between working from home, from an office or a mixture of both. Employees can live anywhere within the country they’re authorized to work in, with a few exceptions.
Remote work plans: In June 2022, Yelp switched to a permanent remote model, allowing employees to work up to 90 days per calendar year from another location (state or city) within their country of employment.
