Investments

9 Months Ended

Oct. 31, 2020

Investments, Debt and Equity Securities [Abstract]

Investments

Investments

Marketable Securities

At October 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	$	3,236	$	19	$	(2)	$	3,253
U.S. treasury securities	162		2		0		164
Mortgage backed obligations	404		4		(1)		407
Asset backed securities	1,137		7		(1)		1,143
Municipal securities	312		1		0		313
Foreign government obligations	88		1		0		89
U.S. agency obligations	101		0		0		101
Covered bonds	297		1		0		298
Total marketable securities	$	5,737	$	35	$	(4)	$	5,768

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
	October 31, 2020		January 31, 2020
Due within 1 year	$	2,187	$	1,332
Due in 1 year through 5 years	3,575		2,466
Due in 5 years through 10 years	6		4
	$	5,768	$	3,802

As of October 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	$	647	$	(2)	$	0	$	0	$	647	$	(2)
Mortgage backed obligations	151		(1)		0		0		151		(1)
Asset backed securities	168		(1)		0		0		168		(1)
	$	966	$	(4)	$	0	$	0	$	966	$	(4)

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 October 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 October 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 October 31,				Nine Months Ended October 31,
	2020		2019		2020		2019
Interest income	$	17	$	32	$	63	$	89
Realized gains	4		0		6		1
Realized losses	(2)		0		(3)		(1)
Investment income	$	19	$	32	$	66	$	89

Strategic Investments

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

	Measurement Category
	Fair Value		Measurement Alternative		Other		Total
Equity securities	$	2,261	$	1,507	$	111	$	3,879
Debt securities	0		0		48		48
Total strategic investments	$	2,261	$	1,507	$	159	$	3,927

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 October 31,				Nine Months Ended October 31,
	2020		2019		2020		2019
Carrying amount, beginning of period	$	1,537	$	917	$	1,502	$	785
Adjustments related to privately held equity securities:
Net additions (1)	(55)		322		1		333
Upward adjustments	31		81		86		253
Impairments and downward adjustments	(6)		(3)		(82)		(54)
Carrying amount, end of period	$	1,507	$	1,317	$	1,507	$	1,317

(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 different 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 (“IPO”), resulting in a change of accounting methodology to fair value and the recognition of an unrealized loss of $92 million for the three months ended October 31, 2020 and an unrealized gain of $525 million for the nine months ended October 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 October 31, 2020, the Company’s carrying value of this investment was $759 million.

In September 2020, one of the Company’s investments, which was previously accounted for under the measurement alternative, completed its IPO which resulted in a change of accounting methodology to fair value. Concurrent with the IPO, the Company invested an additional $250 million. As of October 31, 2020, the Company recognized an unrealized gain of $1.1 billion on this investment, which is reflected in the table below. The investment concurrent with the IPO is subject to a lock-up agreement in which the Company’s ability to sell is restricted until September 2021, while the remainder of the Company’s investment is subject to a lock-up agreement until March 2021. As of October 31, 2020, the Company’s carrying value of this investment was $1.5 billion.

Since the adoption of Accounting Standards Update No. 2016-01 (“ASU 2016-01”), “Financial Instrument-Overall (Subtopic 825-10)” on February 1, 2018, cumulative impairments and downward adjustments were $184 million and cumulative upward adjustments were $540 million through October 31, 2020.

Gains on strategic investments, net

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

3	Three Months Ended October 31,				Nine Months Ended October 31,
	2020		2019		2020		2019
Unrealized gains (losses) recognized on publicly traded equity securities, net	$	997	$	(84)	$	1,620	$	132
Unrealized gains recognized on privately held equity securities, net	25		77		1		199
Realized gains on sales of equity securities, net	11		14		299		76
Gains (losses) on debt securities, net	3		(1)		(10)		(11)
Gains on strategic investments, net	$	1,036	$	6	$	1,910	$	396

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 nine months ended October 31, 2020 was $18 million and $545 million, respectively. Cumulative net realized gains for the nine months ended October 31, 2020 includes approximately $147 million related to the Company’s acquisition of Vlocity in June 2020. See Note 6 “Business Combinations” for additional details on the acquisition. Cumulative net realized gains for the nine months ended October 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 nine months ended October 31, 2020 for strategic investments still held as of October 31, 2020 were $1.0 billion and $1.6 billion, respectively. These include approximately $8 million and $99 million of impairments on its privately held equity and debt securities during the three and nine months ended October 31, 2020, respectively.