Fidelity Marks Down Even More Popular Tech Startups
In quarterly filing, Fidelity takes the axe to value of Dropbox, MongoDB and others.
On Wednesday we wrote about how Fidelity Investments recently marked down its holdings in popular, privately-held startups like Snapchat, Zenefits and Blue Bottle Coffee. All of those shares were held in a mutual fund called the Fidelity Blue Chip Growth Fund, which primarily backs large companies in the S&P 500 and Dow Jones Industrial Average.
But Fidelity also holds startup stock in other mutual funds, including a $142.5 billion vehicle called the Fidelity Growth Company Fund. And again we see some significant markdowns.
Before continuing, it’s important to understand how Fidelity generally invests in privately-held companies. Rather than having each mutual fund do its own deals, the firm’s global equity capital markets group — led by Andy Boyd — negotiates an investment with the company, and then asks individual Fidelity portfolio managers if they want an allocation.
Moreover, while Fidelity marks each of its securities to market every single day (including for unlisted companies), the firm does not leave that work to portfolio managers (who might have conflicts of interest). Instead, Fidelity has created a Fair Value Committee that determines the appropriate price for each security. That means that every Fidelity mutual fund that holds Uber’s Series D stock — there are lots of them — is valuing those securities at the exact same price. It also is worth noting that no Fidelity mutual fund is allowed to invest more than 10% of their net assets in illiquid securities like startup stock, and are required to take “appropriate steps to protect liquidity” if value appreciation or depreciation threatens to test that threshold.
Okay, back to the Fidelity Growth Company Fund. We’ve tracked 24 privately-held companies of interest in there, including several that also were in the Blue Chip Growth Fund (e.g., AppNexus, Snapchat, Uber, Zenefits). But there also were several notable companies that weren’t in the last grouping, including Dropbox, MongoDB, Moderna, Intarcia Therapeutics and Turn Inc.
For example, a pair of biotech “unicorns” — Moderna and Intarcia Therapeutics — each had static valuations between the end of May and the end of September, but each had experienced significant mark-ups over original cost.
NoSQL database company MongoDB, on the other hand, was down 11.77% since the end of May, and a whopping 54% from the time of Fidelity’s original investment in October 2013. Also taking a big valuation hit was Turn Inc., a platform for managing data-driven digital advertising. It got marked down 25.7% between the end of May and the end of September, and 46% from the time of Fidelity’s December 2013 investment. And then there is Dropbox, which was marked down 19.5% between the end of May and the end of September, but was still carried nearly 46% higher than when Fidelity first bought the shares in May 2012.
Fidelity declined to comment on its valuations, or on any of its particular holdings. You can view all of the Fidelity Growth Company Fund below:
Cisco Feels the Pain of a Weakened China Economy
Cisco lowered its guidance for its second quarter as a weakened China economy hurt its sales in the Asia-Pacific region.
Cisco is concerned about China’s weakened economy.
The networking titan reported solid first quarter earnings of 59 cents per share on sales of $12.7 billion. Analysts had expected 56 cents per share on $12.65 billion in sales.
And although the company saw its revenue grow 4% on a year-over-year basis, Cisco CEO Chuck Robbins said in a call with analysts that the company had slashed its second quarter guidance to 0% to 2% growth, with earnings per share pegged between 53 cents and 55 cents.
“Yes, the guidance is lower than the market was expecting,” said Robbins. “I don’t take that lightly.”
Robbins attributed the decline to unfavorable exchange rates being felt across the Asia-Pacific region. Although Cisco CSCO -4.39% saw its first quarter sales increase 3% in that region, Robbins voiced skepticism about significantly increasing sales over the next year, saying that “it’s really a mixed story.”
Cisco has invested heavily in China to grow its business, a goal that encountered significant hurdles after the Chinese government pushed domestic businesses to buy their gear locally. Chinese officials feared that U.S.-made networking technology was a national security risk.
In September, Cisco partnered with China-based server company Inspur to spur sales in the area and help improve relations. Cisco also promised to invest $10 billion in China over the next several years to create Chinese jobs and jump start a flourishing high-tech industry.
Robbins said orders for Cisco equipment in China rose 40% during the first quarter. Although encouraging, it was unclear whether the improvement was merely a product of China being a small market for the company.
China now represents 4% of Cisco’s global business, Cisco CFO Kelly Kramer said in an interview with Fortune. That is up slightly from September, when Cisco said China represented only 3% of its overall sales.
Excluding China and India (where orders also rose 40%), the Asia-Pacific region showed big declines. Robbins said that orders there fell 8%, which he blamed on the “ripple effect” of China devaluing its currency. China decided to adjust its monetary policy in August amid economic turmoil caused by a slowing economy. Other countries in the region that have deep trading relationships with China felt the impact almost immediately and have cut back on buying foreign made products including Cisco’s.
And it’s not just Cisco that’s been hurting in the Asia-Pacific region. IBM IBM -1.47% saw its sales in Asia tumble 19% in its latest quarter while Hewlett-Packard (when it was one company, not two) HPE -2.91% saw its sales in the region drop 7%.
China’s devalued currency also means that Chinese exports are cheaper, which could lift the business of Huawei, a big Chinese rival to Cisco in the region. Kramer acknowledged that Huawei could benefit from China’s currency devaluation.
But she said that Cisco was confident that its ongoing investment in its security business would give it an advantage over Huawei, especially as it competes with the company outside of China. Cisco is banking on its security business as a big source of future growth and has, over the past few months, acquired a handful of companies in the space.
Cisco’s shares fell 4.7% in after hours trading to $27.83.
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A New Startup Wants to Make Personal Propeller Planes Sexy Again
This is what happens when Silicon Valley takes on Cessna.
When you design a product these days, you create it to be a simple as possible—so that one button can operate everything, ideally, aircraft designer David Loury says. But the revolution in product design that has refreshed, reimagined, and simplified nearly every consumer product category has bypassed general aviation.
“I’ve spent more time piloting planes built before my birth than I have spent in aircraft built after I was born,” the 38-year-old CEO of aircraft startup Cobalt says. “Nobody is bringing a solution that’s radically disrupting.”
Today in San Francisco, Cobalt opened up the order book on the aircraft that Loury hopes will change that. The Cobalt Co50 Valkyrie is a five-seat, single-engine, propeller-driven aircraft designed by Cobalt’s engineers, as Loury describes it, “to change all the things that bothered us as pilots.” It dispenses with boxy fuselages and instead borrows a streamlined design (and bulbous cockpit canopy) from early fighter jets. A plush interior boasts hand-stitched leather seats. The rear-mounted propeller allows for increased visibility in front and a quieter cabin. A minimalist cockpit is laid out around a space for the pilot’s iPad.
“Obviously we want to do things newer, sexier, more glamorous,” Loury tells Fortune. “The idea is to refresh general aviation.”
General aviation could use a refresh. Due to the regulation and certification-heavy nature of the aviation industry, legacy aerospace companies have long had an economic interest to make only incremental improvements to well-defined and well-understood aircraft designs. As a result, Loury says, the look and feel of most small aircraft—particularly single-engine propeller aircraft—hasn’t changed much in decades. “They don’t relate at all to the fantasy of flying,” he says.
Cobalt is one of a small cadre of aerospace companies trying to change that. Perhaps unsurprisingly, the Bay Area has become a center of gravity for companies like Icon Aircraft—maker of a sleek new two-seat single-engine recreational aircraft similarly designed around ease-of-use and updated aesthetics—and Cobalt. California boasts some of the most concentrated aerospace engineering talent in the country. And Silicon Valley provides not only the programming and design talent any modern technology company requires, but the ample cash an aerospace startup needs to bring a new aircraft from design to concept to consumer product.
The Valkyrie is Cobalt’s entry into the market, and at $700,000 dollars it isn’t exactly a consumer product in the same way an iPhone is. It’s aimed at a customer who wants a higher performing single-engine piston aircraft without taking on the complexity and expense of flying a turbine-powered aircraft, Loury says. Spec-wise, it boasts a top speed of 260 knots (or roughly 300 miles per hour), a range of more than 1,000 miles, and room for four passengers and luggage.
Cobalt has also built safety into the very core of the design, Loury says. The forward canard wing makes it particularly difficult for the pilot to stall the aircraft, and a full-aircraft parachute ensures that pilots who make critical errors have an extra layer of insurance in place.
These enhanced safety features baked into airframes like Icon’s A5 and Cobalt’s Valkyrie are a benefit in and of themselves, Loury says, but they’re also feed a kind of positive feedback loop. Most small aircraft accidents are the product of stalls, and most of those stalls are produced by pilot error. Those errors typically happen when a pilot—particularly an out-of-practice pilot—is distracted in the cockpit. Simpler and safer aircraft are more accessible aircraft, and the more pilots that fly, and the more frequently they fly, the safer the skies become.
In taking the Valkyrie to market, Cobalt faces competition from deep-pocketed, traditional aerospace incumbents like Textron-owned Cessna and Beechcraft. It also has to avoid the fate of aerospace startups past. A decade ago aviation newcomer Eclipse Aviation–chasing a similar market with its six-seat Eclipse 500 jet–ran into certification and manufacturing problems that ultimately led the company into bankruptcy in 2008.
Loury is banking on the idea that a new breed of aircraft will inspire a new breed of pilot and a new way of thinking about private air travel. With its order book open as of today, Cobalt will soon have hard insight into whether a “newer, sexier, more glamorous” airplane can hit a sweet spot in the private aircraft market, somewhere between the boxy, boring propeller aircraft of yesteryear and the low end of the private jet market.
Cobalt will formally unveil the co50 Valkyrie at an event this evening in San Francisco.
For more about the private aircraft industry, watch this Fortune video.
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