Investments

6 Months Ended

Jul. 31, 2020

Investments, Debt and Equity Securities [Abstract]

Marketable Securities

At July 31, 2020, marketable securities consisted of the following (in millions):


Investments classified as Marketable Securities	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Corporate notes and obligations	$	2,937	$	24	$	(2)	$	2,959
U.S. treasury securities	157		3		0		160
Mortgage backed obligations	313		6		0		319
Asset backed securities	1,053		9		(1)		1,061
Municipal securities	296		1		0		297
Foreign government obligations	107		0		0		107
U.S. agency obligations	17		0		0		17


Covered bonds	308		3		0		311
Total marketable securities	$	5,188	$	46	$	(3)	$	5,231

At January 31, 2020, marketable securities consisted of the following (in millions):


Investments classified as Marketable Securities	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Corporate notes and obligations	$	2,199	$	9	$	(1)	$	2,207
U.S. treasury securities	182		1		0		183
Mortgage backed obligations	225		1		0		226
Asset backed securities	779		2		0		781
Municipal securities	157		1		0		158
Foreign government obligations	69		0		0		69
U.S. agency obligations	12		0		0		12
Time deposits	1		0		0		1
Covered bonds	165		0		0		165
Total marketable securities	$	3,789	$	14	$	(1)	$	3,802

The contractual maturities of the investments classified as marketable securities are as follows (in millions):


	As of
	July 31, 2020		January 31, 2020
Due within 1 year	$	1,990	$	1,332
Due in 1 year through 5 years	3,233		2,466
Due in 5 years through 10 years	8		4
	$	5,231	$	3,802

As of July 31, 2020, the following marketable securities were in a continuous unrealized loss position (in millions):


	Less than 12 Months						12 Months or Greater						Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate notes and obligations	$	737	$	(2)	$	0	$	0	$	737	$	(2)


Asset backed securities	92		(1)		0		0		92		(1)





	$	829	$	(3)	$	0	$	0	$	829	$	(3)

The unrealized losses for each of the marketable securities were less than $1 million. The Company does not believe any of the unrealized losses represent an indication of credit loss based on its evaluation of available evidence as of July 31, 2020. The Company does not intend to sell its investments in a loss position and it is not more likely than not that the Company will be required to sell the investments before recovery of the investment’s amortized basis. No credit allowances were recorded as of July 31, 2020. The Company expects to receive the full principal and interest on all of these marketable securities.

Investment Income

Investment income consists of interest income, realized gains and realized losses on the Company’s cash, cash equivalents and marketable securities. The components of investment income are presented below (in millions):


	Three Months Ended July 31,						Six Months Ended July 31,
	2020		2019		2020		2019
Interest income	$	18	$	31	$	46	$	57
Realized gains	1		1		2		1
Realized losses	0		(1)		(1)		(1)
Investment income	$	19	$	31	$	47	$	57

Strategic Investments

Strategic investments by form and measurement category as of July 31, 2020 were as follows (in millions):


	Measurement Category
	Fair Value		Measurement Alternative		Other		Total
Equity securities	$	864	$	1,537	$	110	$	2,511
Debt securities	0		0		44		44
Total strategic investments	$	864	$	1,537	$	154	$	2,555

Strategic investments by form and measurement category as of January 31, 2020 were as follows (in millions):


	Measurement Category
	Fair Value		Measurement Alternative		Other		Total
Equity securities	$	370	$	1,502	$	40	$	1,912
Debt securities	0		0		51		51
Total strategic investments	$	370	$	1,502	$	91	$	1,963

Measurement Alternative Adjustments

The components of privately held equity securities accounted for under the measurement alternative included in the table above are presented below (in millions):


	Three Months Ended July 31,						Six Months Ended July 31,
	2020		2019		2020		2019
Carrying amount, beginning of period	$	1,731	$	927	$	1,502	$	785
Adjustments related to privately held equity securities:
Net additions (1)	(209)		(9)		56		11
Upward adjustments	25		32		55		172
Impairments and downward adjustments	(10)		(33)		(76)		(51)
Carrying amount, end of period	$	1,537	$	917	$	1,537	$	917

(1) Net additions include additions from purchases and reductions due to exits of securities and reclassifications due to changes to capital structure.

In February 2020, the Company made a strategic investment of $150 million in cash for preferred shares of a technology company in a preferred stock financing. The investment was accounted for using the measurement alternative. In June 2020, the Company made a strategic investment of $100 million in cash for preferred shares of a technology company in a preferred stock financing. The investment was accounted for using the measurement alternative.

In July 2020, one of the Company’s investments, which was previously accounted for under the measurement alternative, completed its initial public offering which resulted in a change of accounting methodology to fair value and the recognition of an unrealized gain of $617 million for the three months ended July 31, 2020, which is reflected in the table below. The investment is subject to a lock-up agreement in which the Company’s ability to sell is restricted until January 2021. As of July 31, 2020, the Company’s carrying value of this investment was $851 million.

Since the adoption of Accounting Standards Update No. 2016-01, “Financial Instrument-Overall (Subtopic 825-10)” (“ASU 2016-01”) on February 1, 2018, cumulative impairments and downward adjustments were $178 million and cumulative upward adjustments were $509 million through July 31, 2020.

Gains on strategic investments, net

The components of gains and losses on strategic investments are presented below (in millions):


2	Three Months Ended July 31,						Six Months Ended July 31,
	2020		2019		2020		2019
Unrealized gains recognized on publicly traded equity securities, net	$	623	$	66	$	623	$	216
Unrealized gains (losses) recognized on privately held equity securities, net	14		0		(24)		122
Realized gains on sales of equity securities, net	49		43		288		62
Losses on debt securities, net	(4)		0		(13)		(10)
Gains on strategic investments, net	$	682	$	109	$	874	$	390

Realized gains on sales of equity securities, net reflects the difference between the sale proceeds and the carrying value of the equity security at the beginning of the period or the purchase date, if later. The cumulative net realized gain, measured as the sale price less the initial purchase price, for securities that were exited during the three and six months ended July 31, 2020 was $168 million and $527 million, respectively. Cumulative net realized gains for the three and six months ended July 31, 2020 includes approximately $147 million related to the Company’s acquisition of Vlocity in June 2020. See Note 6 for additional details on the acquisition. Cumulative net realized gains for the six months ended July 31, 2020 also includes gains related to the Company’s sales of two of its publicly traded investments resulting in a realized gain of $222 million, and a cumulative net gain of $314 million.

Net unrealized gains recognized in the three and six months ended July 31, 2020 for strategic investments still held as of July 31, 2020 were $633 million and $586 million, respectively. These include approximately $14 million and $91 million of impairments on its privately held equity and debt securities during the three and six months ended July 31, 2020, respectively.