Friday, July 19, 2024

Apple’s latest billion-dollar business: Venture capital?

Apple has a trendy new business that could impact the lives of millions and help it make big money in the future.

No, not the Apple Watch. We're talking about Apple getting into venture capital.

On Thursday night, Apple shocked many by announcing a $1 billion investment in Didi Chuxing, the top ride-hailing service in China.

The investment re-ignited rumors about Apple's intentions to build a car and apparently even caused some relationship issues for the CEO of Uber and his girlfriend. Others framed it as a play to improve Apple's status in China, a key growth market.

But there's a more immediate and less discussed impact. Apple, a business with more than $200 billion in cash and marketable securities, is suddenly acting like a venture capital firm for the first time in years.

"As far as I can tell, Apple’s investment in Didi is its biggest venture investment ever and the first investment since the turn of the century," says Stephanie Cook, a spokesperson for Pitchbook, a data provider for venture capital and private equity deals.

The closest Apple has come to venture capital during those years, according to Cook, has been partnering with the investment firm Kleiner Perkins in 2008 to launch the $100 million iFund for iPhone app developers.

With even a small fraction of its billions in available cash, Apple could cement itself as one of the largest and most influential venture investors in the technology industry, not unlike some of its main competitors.

Google, for example, has launched not one but two venture capital arms, which have invested in prominent businesses like Slack, ClassPass and Didi-rival Uber. (Yes, even when it comes to venture investments, Google and Apple are rivals.) IBM and Twitter have similar investment operations.

This investment tactic allows leading tech companies to build stronger partnerships with promising upstarts, peek into some of their financials and potentially gain a leg-up on acquisitions, as happened when Google backed and later bought Nest.

Apple, never one to relinquish control easily, has shown a preference for acquiring dozens of businesses in recent years rather than backing them with capital and letting them do their thing, as the chart below from VC database CB Insights makes clear.

Apple's investment and acquisition activity leans heavily toward the latter.

"[It's] hard to say whether this is a fundamental change for Apple or not," says Van Baker, an Apple analyst with Gartner. "It could just be Apple putting what is a lot of cash spread around the world to work."

Apple finds itself in a nearly unfathomable position today. It makes more profit per quarter than any business in history, but its once unstoppable sales growth engine is finally showing signs of petering out. The iPhone is flatlining, the iPad is declining fast and it's still unclear whether the Apple Watch is making a dent in sales.

After years of letting its cash pile build up, Apple has shown a willingness to put more of that money to work through massive share buybacks, more frequent acquisitions, increased R&D spending (Apple Car anyone?) and, perhaps for the first time, significant venture capital returns.

"Of course, we believe it will deliver a strong return for our invested capital over time as well," Apple CEO Tim Cook told Reuters about the Didi investment.

Didi may not be as well known in the U.S. as Uber, but it actually delivers more rides (all in China) and represents a similarly promising opportunity for investors. Apple now owns a chunk of a startup valued at around $20 billion — and growing fast.

Anand Sanwal, CEO of CB Insights, points out Apple likely also has "some ownership" now in other leading ride-hailing startups like Lyft, Grab and Olacabs through its Didi investment because Didi has itself invested in and partnered with these services in its efforts to take on Uber globally. 

That's not such a bad investment portfolio, considering Apple is just getting started.

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Author: Red

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