Mike Lynch, former chief executive officer at Hewlett-Packard Co.’s Autonomy unit, speaking at a conference on Thursday, April 25, 2013.
Bloomberg | Bloomberg | Getty Images
LONDON — British tech entrepreneur Mike Lynch is missing after the sinking of a superyacht off the coast of Sicily, sources familiar with the matter told CNBC.
The sources, who preferred not to be named due to the sensitivity of the situation, said that Angela Bacares, Lynch’s wife, was confirmed as having been rescued.
The superyacht, called the Bayesian, capsized at around 5 a.m. local time while anchored off the coast of Porticello, a small fishing village located in the province of Palermo in Italy, according to various media reports.
Bayesian, a 56-meter-long sailboat, which later sank off the Sicilian capital Palermo, is seen in Santa Flavia, Italy August 18, 2024 in this picture obtained from social media.
Baia Santa Nicolicchia | Fabio La Bianca | Via Reuters
The vessel was reportedly struck by an unexpectedly violent storm.
At least one man has died and six others were reported missing, while 15 people were rescued including a 1-year-old baby, NBC News reported, citing local officials.
The yacht “suddenly sank” most likely “due to the terrible weather conditions,” the City Council of Bagheria said, according to NBC.
A carabinieri vehicle parked near the harbor where search continues for missing passengers after a yacht capsized on August 19, 2024 off the coast of Palermo, Italy.
Lynch was born in Ilford, a large town in East London, in 1965 and grew up near Chelmsford in the English county of Essex. He attended the University of Cambridge, where he studied natural sciences, focusing on areas including electronics, mathematics and biology.
After completing his undergraduate studies, Lynch completed a Ph.D. in signals processing and communications.
Toward the end of the 1980s, Lynch founded a firm called Lynett Systems Ltd. which produced designs and audio products for the music industry.
A view of the MarineTraffic app (a website that tracks vessels using their publicly-available onboard transponders) on a mobile phone showing the last known location of the yacht Bayesian.
Yui Mok | PA Images | Getty Images
A few years later, in the early 1990s, he founded a fingerprint recognition business called Cambridge Neurodynamics, which counted the South Yorkshire Police among its customers.
But his big break came in 1996 with Autonomy, which he co-founded with David Tabizel and Richard Gaunt as a spinoff from Cambridge Neurodynamics. The company scaled into one of Britain’s biggest tech firms.
Lynch held a lot of influence in the U.K. technology sphere at the height of his success, having once been dubbed Britain’s Bill Gates by the media.
He co-founded Invoke Capital, a venture capital firm focused on backing European tech startups, in 2012.
In his role as a venture capitalist, Lynch was closely involved in helping British cybersecurity firm Darktrace and legal software startup Luminance get off the ground, backing both firms with sizable sums.
Lynch was previously on the board of U.K. broadcaster BBC. He also once served as an advisor to the British government on the Council for Science and Technology.
Warren Buffett unveiled Chubb as his secret buy and Berkshire Hathaway’s equity portfolio had some other changes in the first quarter, according to a new regulatory filing. Firstly, the Omaha-based conglomerate tweaked his energy exposure last quarter, adding to its Occidental Petroleum holding slightly and trimming the Chevron stake. Berkshire has been steadily increasing its Occidental bet since it first took a position in the first quarter of 2022. It was previously disclosed that Buffett trimmed Berkshire’s Apple holding by 13% in the first quarter. He said he sold a portion of the large stake for tax reasons after reaping enormous gains. He implied the sale could be a means of avoiding an even higher tax bill down the road if tax rates rise to help plug a ballooning U.S. fiscal deficit. Other than these changes, Berkshire’s top 10 holdings remained unchanged last quarter. In terms of smaller stakes, the conglomerate slashed its stake in building materials manufacturer Louisiana-Pacific by about 6%. Berkshire also exited its HP stake last quarter. Buffett told shareholders at Berkshire’s annual meeting earlier this month that he dumped the Paramount stake entirely at a loss .
Warren Buffett’s Berkshire Hathaway sold a number of stocks last quarter during the volatile market, according to a new regulatory filing. The Omaha-based conglomerate dumped its remaining $780 million stake in General Motors , a stock Berkshire has been trimming for a few quarters. Berkshire also sold its $650 million stake in materials company Celanese , while exiting smaller positions in United Parcel Service , Johnson & Johnson , Mondelez International and Procter & Gamble. Meanwhile, Berkshire trimmed its stakes in Amazon and Aon slightly, the filing showed. These holdings were still worth more than $1 billion each at the end of September, however. The conglomerate was also downsizing its top bets HP and Chevron . Some of these moves, especially ones involving smaller positions, could have been done by Buffett’s investing lieutenants Todd Combs and Ted Weschler, who each manage about $15 billion for Berkshire. It was previously revealed that Berkshire was a net seller of publicly traded stocks in the third quarter, buying $1.7 billion worth of equities while selling nearly $7 billion. The S & P 500 shed more than 3% last quarter before bouncing back this month. Besides these moves, the “Oracle of Omaha” kept his top holdings unchanged. Apple continued to be the conglomerate’s biggest bet by far, with a value north of $156 billion. Bank of America, American Express, Coca-Cola, Kraft Heinz and Moody’s were also Berkshire’s longtime holdings. Buffett has been in a defensive mode as of late. Not only was he selling stocks, he was also hoarding a record level of cash. Berkshire’s cash pile, mainly parked in short-term Treasury bills, hit $157.2 billion at the end of September thanks to a surge in bond yields. Berkshire has also asked the SEC to keep the details of one or more of its stock holdings confidential.
Arm Holdings CEO Rene Haas poses for a photo with members of leadership before the Nasdaq opening bell at the Nasdaq MarketSite on September 14, 2023 in New York City.
Michael M. Santiago | Getty Images News | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
The long reach of Arm Arm shares surged almost 25% on its first day of trading on New York’s Nasdaq, and a further 6.8% in extended trading. The chip designer priced its shares at $51 a piece in its initial public offering. Shares of Arm began trading at $56.10 a share and ended the day at $63.59. That gives the company a fully diluted market cap of about $68 billion, and a price-to-earnings multiple higher than Nvidia’s.
Markets rebound U.S. stocks rose Thursday, aided by Arm’s electrifying showing and promising economic data from the U.S. The Dow Jones Industrial Average, in particular, rallied 0.96% for its best day since August. Asia-Pacific markets rose Friday, cheered by China’s better-than-expected data. Japan’s Topix gained 1.25% to hit a 33-year high, as Softbank jumped around 2.7% after Arm’s impressive showing.
China’s economy picks up Finally, some positive economic data from China. Retail sales in August grew 4.6% from a year ago, beating expectations for 3% growth. Industrial production rose 4.5%, also surpassing the forecast of 3.9%. However, fixed asset investment was still weighed down by the real estate sector, and came in at 3.2%, slightly below the expected growth of 3.3%.
Screeching to a halt Thousands of members of the United Auto Workers went on strike after the union failed to reach a deal with General Motors, Ford Motor and Stellantis. Workers at three key U.S. assembly plants plan to cease work from Friday — those plants were targeted because they produce highly profitable vehicles that are still in high demand.
[PRO] Cash or stocks? In recent weeks, U.S. Treasury yields have risen to their highest levels in decades. Meanwhile, major indexes lost ground in August. That has boosted the attractiveness of keeping cash holdings as opposed to investing in stocks. But will that trend hold true for the rest of the year? Analysts from big banks weigh in on the debate between cash and stocks.
When you have a toothache, your whole body feels the pain. In the same vein, when Arm experienced a flush of wellbeing, it radiated through markets’ entire body, giving them their best day in weeks.
“The successful IPO of Arm … instills some confidence that perhaps the capital markets window is going to open again after virtually being closed for the last 18 months,” said Art Hogan, chief market strategist at B. Riley Financial.
Big banks rallied on excitement that the sleepy IPO market for tech companies might finally be stirring. (More IPOs means more dealmaking — and higher revenue — for banks.) Shares of JPMorgan Chase rosealmost 2%, Morgan Stanley gained 2.09% and Goldman Sachs popped 2.86%. Tech IPOs are particularly important to Goldman as the bank relies on investment banking more than its rivals. With Instacart and marketing firm Klaviyo set to list soon, Goldman — which has been struggling of late — might see a change in its fortunes.
Goldman and JPMorgan are big components of the Dow. That helped the blue-chip index rise 0.96%, its best day since Aug. 7, giving it a closing level above its 50-day moving average for the first time since Sept. 1. The S&P 500 advanced 0.84%, its best showing in around two weeks, and the Nasdaq Composite gained 0.81%.
Meanwhile, a tame core PPI reading for August assuaged worries after core consumer price index was higher than expected. But because CPI is a lagging indicator, while PPI is considered a leading indicator — that is, it predicts the future state of the economy — markets found solace in the idea that things aren’t as bad as consumer inflation appeared to portray.
And August retail sales jumped 0.6% against the 0.1% expected. Taken together with the PPI report, that suggests the U.S. economy, supported by an indefatigable consumer, might skirt a recession even as inflation gradually cools.
“You’ve got the perfect framework of inflation heading in the right direction, but the economy not falling apart,” Hogan said. “And that really paints the picture that the Fed has done the right thing and we may well be orchestrating that elusive soft landing.”
But the economy is infamously volatile. Hence Hogan’s all-important caveat: “At least that’s the impression we get this week.” Still, after markets ended in the red last week, any reprieve, however temporary, will be welcome.
Rene Haas, chief executive officer of Arm Ltd., center, during the company’s IPO at the Nasdaq MarketSite in New York, US, on Thursday, Sept. 14, 2023.
Michael Nagle | Bloomberg | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
The long reach of Arm Arm shares surged almost 25% on its first day of trading on New York’s Nasdaq, and a further 6% in extended trading. The chip designer priced its shares at $51 a piece in its initial public offering. Shares of Arm began trading at $56.10 a share and ended the day at $63.59. That gives the company a fully diluted market cap of about $68 billion, and a price-to-earnings multiple higher than Nvidia’s.
Markets rebound U.S. stocks rose Thursday, aided by Arm’s electrifying showing and promising economic data from the U.S. The Dow Jones Industrial Average, in particular, rallied 0.96% for its best day since August. European markets traded higher, with the regional Stoxx 600 index climbing 1.52% and other major bourses adding at least 1% following the European Central Bank’s rate decision.
Record rates in the EU The ECB raised rates by 25 basis points to 4%, a record high reached after 10th consecutive hikes since June 2022 when rates were -0.5%. The good news is that the ECB indicated it may be holding off further hikes. “ECB interest rates have reached levels that … will make a substantial contribution to the timely return of inflation to the target,” the bank’s council said.
Focus on the core The U.S. producer price index, which measures wholesale prices, rose a seasonally adjusted 0.7% in August — far more than the 0.4% estimate — and 1.6% from a year earlier. August was the biggest monthly jump in more than a year. However, when stripping out food and energy prices, the month-over-month PPI was 0.2%, in line with expectations, and 2.1% on an annual basis, the lowest since January 2021.
[PRO] No secret sauce for HP Warren Buffett’s Berkshire Hathaway sold a portion of its stake in HP. This year hasn’t been kind to the computer and printer maker, as its fiscal third-quarter earnings missed Wall Street’s expectations. CNBC Pro’s Yun Li breaks down what Berkshire’s play in HP initially was, and whether it’ll change going forward — based on another bet the company has made in the past.
When you have a toothache, your whole body feels the pain. In the same vein, when Arm experienced a flush of wellbeing, it radiated through markets’ entire body, giving them their best day in weeks.
“The successful IPO of Arm … instills some confidence that perhaps the capital markets window is going to open again after virtually being closed for the last 18 months,” said Art Hogan, chief market strategist at B. Riley Financial.
Big banks rallied on excitement that the sleepy IPO market for tech companies might finally be stirring. (More IPOs means more dealmaking — and higher revenue — for banks.) Shares of JPMorgan Chase rosealmost 2%, Morgan Stanley gained 2.09% and Goldman Sachs popped 2.86%. Tech IPOs are particularly important to Goldman as the bank relies on investment banking more than its rivals. With Instacart and marketing firm Klaviyo set to list soon, Goldman — which has been struggling of late — might see a change in its fortunes.
Goldman and JPMorgan are big components of the Dow. That helped the blue-chip index rise 0.96%, its best day since Aug. 7, giving it a closing level above its 50-day moving average for the first time since Sept. 1. The S&P 500 advanced 0.84%, its best showing in around two weeks, and the Nasdaq Composite gained 0.81%.
Meanwhile, a tame core PPI reading for August assuaged worries — somewhat — after core consumer price index was higher than expected. As PPI is considered a leading indicator, that is, it predictsthe future state of the economy, while CPI is a lagging indicator, markets found solace in the idea that things aren’t as bad as the CPI appeared to portray.
And August retail sales jumped 0.6% against the 0.1% expected. Taken together with the PPI report, that suggests the U.S. economy, supported by an indefatigable consumer, might skirt a recession even as inflation gradually cools.
“You’ve got the perfect framework of inflation heading in the right direction, but the economy not falling apart,” Hogan said. “And that really paints the picture that the Fed has done the right thing and we may well be orchestrating that elusive soft landing.”
But the economy is infamously volatile. Hence Hogan’s all-important caveat: “At least that’s the impression we get this week.” Still, after markets ended in the red last week, any reprieve, however temporary, will be welcome.
HP Inc.’s stock initially skidded more than 6% in extended trading Tuesday after the computing giant reported mixed results and offered a cautious outlook.
“While we expect another quarter of sequential growth in [the fourth quarter], the external environment has not improved as quickly as anticipated and we are moderating our expectations as a result,” HP Chief Executive Enrique Lores said in an interview.
For the fourth quarter, HP is guiding for adjusted earnings of 85 cents to 97 cents a share, while analysts polled by FactSet are forecasting 95 cents a share. Lores warned that PC pricing has not “recovered as quickly” as expected in what he called a challenging economy, but he said that the availability of AI products in late 2024 should “refresh” consumer and business sales.
HP HPQ, +0.13%
reported fiscal third-quarter net earnings of $766 million, or 76 cents a share, compared with net earnings of $1.12 billion, or $1.08 a share, in the year-ago quarter. Adjusted earnings were 86 cents a share.
Revenue declined 10% to $13.2 billion, compared with $14.65 billion a year ago. It was the third straight quarter HP missed analysts’ revenue estimates.
Analysts surveyed by FactSet had expected on average net earnings of 86 cents a share on revenue of $13.4 billion.
Shares of HP have gone up 17% this year, while the S&P 500 index SPX
has gained 17%.
“HP results provided a look into the bifurcation between AI and everything else in tech,” analyst Daniel Newman, CEO of the Futurum Group, said in an email. “While the company made solid sequential gains, it is still dealing with a macro softness that is likely to persist as tech investment runs to AI and on device AI monetization is showing a longer path to clarity.”
A sign for a Bitcoin automated teller machine (ATM) at a gas station in Washington, DC, US, on Thursday, Jan. 19, 2023.
Al Drago | Bloomberg | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Markets were mostly unchanged Monday, though bitcoin breached $30,000. Investors are waiting for bank earnings and price reports.
U.S. stocks were unchanged Monday after the long weekend, indicating investors were still weighing — and waiting for — economic data. Asia-Pacific markets mostly rose Tuesday. South Korea’s Kospi climbed 1.4% as the country’s central bank left interest rates unchanged at 3.5%. On the other hand, China’s Shanghai Composite slid 0.4% as prices in the country rose 0.7% year on year for March, which was lower than expected.
Bitcoin broke the $30,000 barrier for the first time since June last year. The biggest cryptocurrency by market cap is up 86% year to date as investors flocked to it amid the banking turmoil.
Alibaba revealed Tuesday morning an artificial intelligence chatbot named Tongyi Qianwen that will eventually be integrated with all its products. The news didn’t have that much of a lasting impact on the company’s Hong Kong-listed shares, which were last up 0.77% — but rival Baidu sank 6.79%.
PRO Samsung might see a 96% plummet in quarterly profit, and it plans to cut memory chip production. So why did Wall Street react positively to the news?
Markets in the U.S. reopened Monday but seemed to retain a post-holiday sluggishness as investors digested multiple signs of a slowing — but still strong — economy.
First, even though consumers felt credit was harder to come by in March, the banking turmoil is subsiding. Charles Schwab said average daily outflows were down from February, and the bank had added $53 billion of core net new client assets in March. That trend is consistent with the broader banking industry, according to Federal Reserve data. For the period ending March 29, deposits increased by $42.3 billion on a non-seasonally adjusted basis.
Likewise, although the tech sector was hit by bad news, the storm clouds had a silver lining. Computer shipments for the first quarter plummeted — but IDC thinks cratering demand lets companies finish “rejigging their plans” and improve their supply chains. Indeed, Dell popped 2.98% and HP rose 1.54% on the news — though Apple fell 1.6%, probably because it saw the steepest fall in shipments.
The same dynamic of “bad news is good news” played out in the memory chip sector. Samsung’s plan to cut chip production helped push rivals Micron Technology and Western Digital higher by 8.04% and 8.22%, respectively. There were too many chips flooding the market, analysts believe, and tighter supply is a good thing.
Outside those industries, however, the major stock indexes were mostly unchanged. The S&P 500 ticked up 0.1%, the Dow Jones Industrial Average added 0.3% and the Nasdaq Composite declined by 0.03%.
Investors await a slew of economic indicators this week. On the earnings front, JPMorgan Chase, Wells Fargo and Citigroup report quarterly results. Traders will certainly pore through those reports, but they’ll also want to see what the U.S. consumer price index and producer price index say about the economy. If they reinforce last week’s jobs report and indicate that the economy isn’t overheating, the Federal Reserve may actually manage to steer markets to a fabled “soft landing.” Investors are keeping their fingers crossed.
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Pedestrians walk past the NASDAQ MarketSite in New York’s Times Square.
Eric Thayer | Reuters
It seems like an eternity ago, but it’s just been a year.
At this time in 2021, the Nasdaq Composite had just peaked, doubling since the early days of the pandemic. Rivian’s blockbuster IPO was the latest in a record year for new issues. Hiring was booming and tech employees were frolicking in the high value of their stock options.
Twelve months later, the landscape is markedly different.
Not one of the 15 most valuable U.S. tech companies has generated positive returns in 2021. Microsoft has shed roughly $700 billion in market cap. Meta’s market cap has contracted by over 70% from its highs, wiping out over $600 billion in value this year.
In total, investors have lost roughly $7.4 trillion, based on the 12-month drop in the Nasdaq.
Interest rate hikes have choked off access to easy capital, and soaring inflation has made all those companies promising future profit a lot less valuable today. Cloud stocks have cratered alongside crypto.
There’s plenty of pain to go around. Companies across the industry are cutting costs, freezing new hires, and laying off staff. Employees who joined those hyped pre-IPO companies and took much of their compensation in the form of stock options are now deep underwater and can only hope for a future rebound.
IPOs this year slowed to a trickle after banner years in 2020 and 2021, when companies pushed through the pandemic and took advantage of an emerging world of remote work and play and an economy flush with government-backed funds. Private market darlings that raised billions in public offerings, swelling the coffers of investment banks and venture firms, saw their valuations marked down. And then down some more.
Rivian has fallen more than 80% from its peak after reaching a stratospheric market cap of over $150 billion. The Renaissance IPO ETF, a basket of newly listed U.S. companies, is down 57% over the past year.
Tech executives by the handful have come forward to admit that they were wrong.
The Covid-19 bump didn’t, in fact, change forever how we work, play, shop and learn. Hiring and investing as if we’d forever be convening happy hours on video, working out in our living room and avoiding airplanes, malls and indoor dining was — as it turns out — a bad bet.
Add it up and, for the first time in nearly two decades, the Nasdaq is on the cusp of losing to the S&P 500 in consecutive years. The last time it happened the tech-heavy Nasdaq was at the tail end of an extended stretch of underperformance that began with the bursting of the dot-com bubble. Between 2000 and 2006, the Nasdaq only beat the S&P 500 once.
Is technology headed for the same reality check today? It would be foolish to count out Silicon Valley or the many attempted replicas that have popped up across the globe in recent years. But are there reasons to question the magnitude of the industry’s misfire?
It was supposed to be the year of Meta. Prior to changing its name in late 2021, Facebook had consistently delivered investors sterling returns, beating estimates and growing profitably with historic speed.
The company had already successfully pivoted once, establishing a dominant presence on mobile platforms and refocusing the user experience away from the desktop. Even against the backdrop of a reopening world and damaging whistleblower allegations about user privacy, the stock gained over 20% last year.
But Zuckerberg doesn’t see the future the way his investors do. His commitment to spend billions of dollars a year on the metaverse has perplexed Wall Street, which just wants the company to get its footing back with online ads.
The big and immediate problem is Apple, which updated its privacy policy in iOS in a way that makes it harder for Facebook and others to target users with ads.
With its stock down by two-thirds and the company on the verge of a third straight quarter of declining revenue, Meta said earlier this month it’s laying off 13% of its workforce, or 11,000 employees, its first large-scale reduction ever.
“I got this wrong, and I take responsibility for that,” Zuckerberg said.
Mammoth spending on staff is nothing new for Silicon Valley, and Zuckerberg was in good company on that front.
Software engineers had long been able to count on outsized compensation packages from major players, led by Google. In the war for talent and the free flow of capital, tech pay reached new heights.
Recruiters at Amazon could throw more than $700,000 at a qualified engineer or project manager. At gaming company Roblox, a top-level engineer could make $1.2 million, according to Levels.fyi. Productivity software firm Asana, which held its stock market debut in 2020, has never turned a profit but offered engineers starting salaries of up to $198,000, according to H1-B visa data.
Fast forward to the last quarter of 2022, and those halcyon days are a distant memory.
Layoffs at Cisco, Meta, Amazon and Twitter have totaled nearly 29,000 workers, according to data collected by the website Layoffs.fyi. Across the tech industry, the cuts add up to over 130,000 workers. HPannounced this week it’s eliminating 4,000 to 6,000 jobs over the next three years.
For many investors, it was just a matter of time.
“It is a poorly kept secret in Silicon Valley that companies ranging from Google to Meta to Twitter to Uber could achieve similar levels of revenue with far fewer people,” Brad Gerstner, a tech investor at Altimeter Capital, wrote last month.
Gerstner’s letter was specifically targeted at Zuckerberg, urging him to slash spending, but he was perfectly willing to apply the criticism more broadly.
“I would take it a step further and argue that these incredible companies would run even better and more efficiently without the layers and lethargy that comes with this extreme rate of employee expansion,” Gerstner wrote.
Activist investor TCI Fund Management echoed that sentiment in a letter to Google CEO Sundar Pichai, whose company just recorded its slowest growth rate for any quarter since 2013, other than one period during the pandemic.
“Our conversations with former executives suggest that the business could be operated more effectively with significantly fewer employees,” the letter read. As CNBC reported this week, Google employees are growing worried that layoffs could be coming.
Those special purpose acquisition companies, or blank-check entities, created so they could go find tech startups to buy and turn public were a phenomenon of 2020 and 2021. Investment banks were eager to underwrite them, and investors jumped in with new pools of capital.
SPACs allowed companies that didn’t quite have the profile to satisfy traditional IPO investors to backdoor their way onto the public market. In the U.S. last year, 619 SPACs went public, compared with 496 traditional IPOs.
This year, that market has been a bloodbath.
The CNBC Post SPAC Index, which tracks the performance of SPAC stocks after debut, is down over 70% since inception and by about two-thirds in the past year. Many SPACs never found a target and gave the money back to investors. Chamath Palihapitiya, once dubbed theSPAC king, shut down two deals last month after failing to find suitable merger targets and returned $1.6 billion to investors.
Then there’s the startup world, which for over a half-decade was known for minting unicorns.
Last year, investors plowed $325 billion into venture-backed companies, according to EY’s venture capital team, peaking in the fourth quarter of 2021. The easy money is long gone. Now companies are much more defensive than offensive in their financings, raising capital because they need it and often not on favorable terms.
“You just don’t know what it’s going to be like going forward,” EY venture capital leader Jeff Grabow told CNBC. “VCs are rationalizing their portfolio and supporting those that still clear the hurdle.”
The word profit gets thrown around a lot more these days than in recent years. That’s because companies can’t count on venture investors to subsidize their growth and public markets are no longer paying up for high-growth, high-burn names. The forward revenue multiple for top cloud companies is now just over 10, down from a peak of 40, 50 or even higher for some companies at the height in 2021.
The trickle down has made it impossible for many companies to go public without a massive markdown to their private valuation. A slowing IPO market informs how earlier-stage investors behave, said David Golden, managing partner at Revolution Ventures in San Francisco.
“When the IPO market becomes more constricted, that circumscribes one’s ability to find liquidity through the public market,” said Golden, who previously ran telecom, media and tech banking at JPMorgan. “Most early-stage investors aren’t counting on an IPO exit. The odds against it are so high, particularly compared against an M&A exit.”
There have been just 173 IPOs in the U.S. this year, compared with 961 at the same point in 2021. In the VC world, there haven’t been any deals of note.
“We’re reverting to the mean,” Golden said.
An average year might see 100 to 200 U.S. IPOs, according to FactSet research. Data compiled by Jay Ritter, an IPO expert and finance professor at the University of Florida, shows there were 123 tech IPOs last year, compared with an average of 38 a year between 2010 and 2020.
Buy now, pay never
There’s no better example of the intersection between venture capital and consumer spending than the industry known as buy now, pay later.
Companies such as Affirm, Afterpay (acquired by Block, formerly Square) and Sweden’s Klarna took advantage of low interest rates and pandemic-fueled discretionary incomes to put high-end purchases, such as Peloton exercise bikes, within reach of nearly every consumer.
Affirm went public in January 2021 and peaked at over $168 some 10 months later. Affirm grew rapidly in the early days of the Covid-19 pandemic, as brands and retailers raced to make it easier for consumers to buy online.
By November of last year, buy now, pay later was everywhere, from Amazon to Urban Outfitters‘ Anthropologie. Customers had excess savings in the trillions. Default rates remained low — Affirm was recording a net charge-off rate of around 5%.
Affirm has fallen 92% from its high. Charge-offs peaked over the summer at nearly 12%. Inflation paired with higher interest rates muted formerly buoyant consumers. Klarna, which is privately held, saw its valuation slashed by 85% in a July financing round, from $45.6 billion to $6.7 billion.
The world’s richest person — even after an almost 50% slide in the value of Tesla — is now the owner of Twitter following an on-again, off-again, on-again drama that lasted six months and was about to land in court.
Musk swiftly fired half of Twitter’s workforce and then welcomed former President Donald Trump back onto the platform after running an informal poll. Many advertisers have fled.
And corporate governance is back on the docket after this month’s sudden collapse of cryptocurrency exchange FTX, which managed to grow to a $32 billion valuation with no board of directors or finance chief. Top-shelf firms such as Sequoia, BlackRock and Tiger Global saw their investments wiped out overnight.
“We are in the business of taking risk,” Sequoia wrote in a letter to limited partners, informing them that the firm was marking its FTX investment of over $210 million down to zero. “Some investments will surprise to the upside, and some will surprise to the downside.”
Even with the crypto meltdown, mounting layoffs and the overall market turmoil, it’s not all doom and gloom a year after the market peak.
Golden points to optimism out of Washington, D.C., where President Joe Biden’s Inflation Reduction Act and the Chips and Science Act will lead to investments in key areas in tech in the coming year.
Funds from those bills start flowing in January. Intel, Micron and Taiwan Semiconductor Manufacturing Company have already announced expansions in the U.S. Additionally, Golden anticipates growth in health care, clean water and energy, and broadband in 2023.
“All of us are a little optimistic about that,” Golden said, “despite the macro headwinds.”
The computer maker disclosed the major job cuts in a statement accompanying its lackluster quarterly earnings report on Tuesday afternoon, where it also said sales dropped more than 11% compared to the same period last year.
“The company expects to reduce gross global headcount by approximately 4,000-6,000 employees,” HP said. “These actions are expected to be completed by the end of fiscal 2025.”
HP President and CEO Enrique Lores added in a statement that the company’s so-called “Future Ready strategy” will “enable us to better serve our customers and drive long-term value creation by reducing our costs and reinvesting in key growth initiatives to position our business for the future.”
The pandemic-fueled personal-computer boom has ended, so how will that affect demand and pricing for PCs and the retailers that sell them this holiday season?
A sense of the fallout will be provided in the week ahead with results due from PC makers Dell Technologies Inc. DELL, +0.67%
and HP Inc. HPQ, +0.17%,
along with videoconferencing platform Zoom Video Communications Inc. ZM, -1.15%
and electronics chain Best Buy Co Inc. BBY, +2.88%
All of those companies will report amid signs of deep holiday discounting for products such as clothing and electronics, after many customers — stuck at home in 2020 and 2021 — loaded up on laptops and other goods and turned Zoom into a digital conference room. But this year, decades-high inflation, and a return to prepandemic spending on travel and hanging out in person, have forced retailers and electronics makers to adjust to a world where more people are spending on essentials.
The companies report during a shortened, quieter week — thanks to Thanksgiving — and after concerns about a recession have hung over much of the year. With 94% of S&P 500 SPX, +0.48%
companies having already reported third-quarter results, only a dozen are set to release earnings in the week ahead.
But among those 94%, there are signs that preoccupations with a downturn might be easing, after the economy grew during the third quarter and reversed after two quarters of declines.
FactSet senior analyst John Butters, in a report on Thursday, said 179 companies have mentioned the term “recession,” during earnings calls in the third quarter. That’s still above the average over 10 years, but it’s below the 242 companies that mentioned a recession in the second quarter.
Elsewhere on Monday, J.M. Smucker Co. SJM, +1.11%
— best known for Folgers and Jif — reports results, following concerns about higher food prices and how much higher they might go. Life-sciences electronics maker Agilent Tecnologies Inc. A, +1.21%
report results on Monday as well. Fast-food chain Jack in the Box Inc. JACK,
reports Tuesday. Tractor and construction-vehicle Deere & Co. DE, +0.31%
reports Wednesday, following production and supply-chain snarls but steady demand.
The calls to put on your calendar
Clothing demand, discount demand: Urban Outfitters Inc. URBN, +2.44%
reports Monday, while Burlington Stores Inc. BURL, +4.63%,
Nordstrom Inc. JWN, +1.71%
and dollar-store chain Dollar Tree Inc. DLTR, -0.21%
report on Tuesday.
The discounting wave across clothing retailers, an effort to clear inventories, might attract more consumers, but it’s worried Wall Street analysts focused on margins and the bottom line. Still, some analysts have said that more younger shoppers feel like their wardrobes are getting stale, and they say Nordstrom, whose customers tend to have more money, is best geared for “an upcoming wardrobe refresh.”
Off-price clothing and home-goods retailer Burlington, meanwhile, will report after rival discounters Ross and TJX received a lift from investors this week.
Ross’ chief executive, Barbara Rentler, noted that rising prices had hurt its lower-income consumers. But Jefferies analysts said that Burlington and other discounters, which often buy up goods that other retailers don’t want, stood to benefit from the inventory purge.
Dollar Tree, meanwhile, reports as more shoppers seek cheaper grocery options, but as food prices rise nonetheless. But Bank of America analysts, in a note last month, said traffic data implied a “slowdown” heading into the results.
The numbers to watch
Demand trends for PCs, electronics: Dell and HP report in the wake of deeper job cuts across the tech industry, while Zoom tries to tack on more features — such as calendar and email functions — to appeal to small business and adapt to a hybrid-work world.
The PC boom’s demise hit home at Dell during its prior quarter, reported in August, after personal-computer sales at the company came in below estimates. Executives, at that time, said PC demand had fallen and that “customers are taking a more cautious view of their needs given the uncertainty.”
Some analysts, however, signaled that some degree of investor pessimism was already baked into the stock prices.
“We recognize the deteriorating industry fundamentals in relation to PCs as well as incremental slowdown in IT Infrastructure. That said, we believe the magnitude of the cuts last quarter set up Dell to be less exposed to another round of material earnings revisions,” JPMorgan analysts said in a note. And even as HP feels similar pain, analysts there said share buybacks could be “a bright spot.”
Results from HP and Dell could also have implications for Best Buy, which sells laptops, TVs, phones and other electronic devices.
“Recall that initial expectations for the year were that BBY would face pressure as it lapped stimulus-fueled spending and broad-based demand for technology products and services,” Wedbush analysts said in a note on Friday.
“However, the macro has been more volatile than expected with consumers facing significant inflationary pressures and lower-income households are making decisions to trade down in some categories such as televisions.”
