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Small and quiet, with no bankers

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Apple CEO Tim Cook

Spencer Platt | Getty Images

In February, Apple CEO Tim Cook told shareholders that the company had bought about 100 companies in the past six years. That works out to the iPhone maker buying a company every three to four weeks.

The statistic gives the impression of a dealmaking machine. But only a handful of those deals have been big splashy transactions like the $3 billion deal for headphone maker Beats Music in 2014. The vast majority have been for significantly smaller firms without a major public profile.

While big tech rivals routinely strike multi-billion dollar deals, Apple has followed a different strategy. It’s refined the “acquihire,” or strategic purchase of a small company primarily for its staff.

People who have joined Apple through an acquisition and participated in the acquisition process told CNBC that Apple’s acquisition strategy focuses on getting talented technical staff from smaller companies, often valuing those companies in terms of the number of engineers working there, and quickly and quietly integrating them into teams at Apple.

Apple has used acquihires to speed expansion in fields where it needs technical talent or it sees a specific technology that could set it apart from its rivals. While the acquihire is a common technique among big tech companies, Apple’s near-exclusive focus on smaller transactions sets it apart.

“We have seen companies such as Google, Facebook, Intel and Amazon going for many billion-dollar deals,” said Nicklas Nilsson, analyst at GlobalData, a firm that tracks M&A transactions. “Apple is buying more smaller startups while others spend more on established players.”

Cook said in an interview with CNBC in 2019 that the company’s approach is to identify where the company has technical challenges and then to buy companies that address them. One example was the acquisition of AuthenTec in 2012, which led to the iPhone’s fingerprint scanner. “We bought a company that accelerated Touch ID at a point,” Cook said.

Other past acquisitions have become features in Apple products. In 2017, Apple bought an iPhone app for power users called Workflow, which is the basis for Shortcuts app. In 2018, it bought Texture, which reemerged as Apple News+, its subscription news service. Even Siri, its voice assistant, was the result of an 2010 acquisition.

Apple has gone on sprees picking up multiple firms in augmented and virtual reality, artificial intelligence, maps, health, and semiconductors, presaging future products or features.

Buying technical staff

Many of Apple’s deals have flown under the radar. According to a CNBC analysis of public reports, Apple has purchased 55 companies since January 2015, in line with a congressional report from last year and significantly lower than Cook’s own tally.

People who have participated in Apple’s acquisition process say Apple expects discretion — unsurprising given how secretive the company is. Apple generally doesn’t announce small acquisitions and warns staff at the acquired companies not to update LinkedIn profiles to say they were acquired by Apple. If a member of the media gets wind of a deal and asks, Apple sometimes confirms deals with a boilerplate phrase that it “generally does not discuss” its purpose or plans for acquired companies.

One person who sold a company to Apple said that after news of his deal broke, he could not respond to friends and family congratulating him. He asked not to be named because he is under non-disclosure agreements.

While every deal is different in its specifics, there are a few commonalities to Apple’s approach. Apple is generally not interested in continuing the acquired company’s line of business, and forces acquired units to discontinue future products or shed customers. The revenue generated by smaller companies is usually immaterial and unimportant to Apple, which reported $274.52 billion in sales in its fiscal 2020.

Apple is particularly interested in technical staff, who are often called “individual contributors” in Silicon Valley jargon. It’s less interested in hiring sales or support staff, according to people who have participated in the process. Apple has put conditions on transactions that a certain number of technical employees must join Apple or the deal would fall through.

These technical employees get what are called “golden handcuffs,” or large stock packages that vest over three or four years. Acquired staff also get paid for their equity in the company that was acquired. Some people familiar with Apple’s process say that it assigns value to companies based on the number of technical employees, with a price tag of around $3 million per engineer, instead of basing it on the start-up’s revenue or fundraising track record.

No bankers

Often, Apple’s acquisition process starts after a demo to technical teams at Apple. Apple frequently invites other companies to show technology that Apple might want to partner with or license, and sometimes these meetings kick off an acquisition process.

When a manager on those teams decides they want the technology or talent, they bring it up to the M&A team, which acts as a service organization helping Apple’s engineering groups close the transaction smoothly, a person familiar with the process said.

Once the transaction is completed, Apple has a team that focuses on integrating the new employees into the specific technical group where they’ll contribute. Individual contributors who join Apple through an acquisition often stay past their first vesting cliff, meaning that their first large chunk of Apple stock has been granted to them, and can stay with the company for years, signaling an effective integration.

For smaller deals, Apple doesn’t typically deploy bankers. Apple’s M&A team does due diligence, interviews team members and keeps the transaction on track to close. One person who declined to be named because of NDAs said that Apple’s team was unusually trustworthy and professional compared to other companies he had engaged in talks with, although they knew what they wanted to pay for the company when the process started, he said.

A closer look at what Apple is buying can reveal where the company is expanding quickly. One field is in augmented and virtual reality technologies, where Apple has bought 12 companies since 2013 as it builds out the Technology Development Group (TDG) division, which is working on head-worn computers. Apple is working on a high-end VR headset for release in 2022 and more advanced, lightweight glasses in 2023 or later, according to reports.

For example, in 2018 Apple bought Akonia Holographics, which worked on smart glasses lenses. Last year, Apple bought NextVR, which wrangled content for virtual reality headsets, and Spaces, a spin-off out of DreamWorks Animation that built location-based virtual reality experiences.

More recently, Apple has been snapping up firms working on artificial intelligence, buying 25 companies in the space since 2016, according to GlobalData.

Skilled workers in AI can be difficult to hire because many companies want them. Apple is also working to improve its Siri voice assistant to compete with Amazon’s Alexa and Google‘s assistant.

Last year, Apple bought a Seattle-based firm called Xnor.ai for a reported $200 million. It followed that up by buying Ireland’s Voysis, which worked on understanding speech. In 2019, it bought Pullstring, which made tools to build talking toys like Barbie.

Apple could certainly go for bigger game with more than $200 billion of cash and liquid investments and over $80 billion in annual free cash flow. Wall Street bankers have encouraged a big purchase in the past, and Apple did spend $1 billion to buy Intel‘s wireless modem business, including 2,200 employees, in 2019. That year, Apple promoted its head of M&A, Adrian Perica, to its executive team reporting to Cook. Still, Apple has been judicious, leading many financiers to believe that a big acquisition is not part of the company’s DNA.

“We’re not afraid to look at acquisitions of any size. But our priority is on valuation and strategic fit, and our focus is generally going to be on small, innovative companies exploring technologies that complement our products, and help push them forward,” Cook said at the shareholder meeting. 

Apple declined to comment for this story.

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GameStop shares jump after the company raises over $1B in stock sale

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A GameStop store is pictured in New York, January 29, 2021.

Carlo AllegriI | Reuters

GameStop shares climbed after the video game retailer said it sold 5 million additional shares, raising $1.13 billion in capital to accelerate growth.

The original Reddit-favorite meme stock jumped 10.6% at one point Tuesday morning after the company announced the completion of its at-the-market equity offering program that was initially disclosed on June 9. By late morning, the daily gain was about 6%. GameStop said it will use the proceeds for general corporate purposes as well as for investing in growth initiatives and maintaining a strong balance sheet.

This is the second stock sale that GameStop has conducted since the company became a star on Reddit’s WallStreetBets forum, where retail traders aimed to push stock prices higher and squeeze out short-selling hedge funds. GameStop sold 3.5 million additional shares in April and raised $551 million.

Investors have been encouraged by the moves and looked past the dilution of their stakes as GameStop took advantage of its monstrous rally this year — more than 1,000% — to speed up its e-commerce transformation.

White Square Capital, a London-based hedge fund, is closing its main fund and returning capital after suffering losses from betting against GameStop, the Financial Times reported Tuesday.

Earlier this month, GameStop named former Amazon executive Matt Furlong as its new CEO.  The company also hired several other former Amazon executives, including Jenna Owens, its new chief operating officer; Matt Francis, its first chief technology officer; and Elliott Wilke, its chief growth officer.

For its fiscal first quarter, GameStop reported narrower-than-expected losses per share and revenue that topped Wall Street estimates. As of May 1, GameStop said, it had paid off its long-term debt and no longer had any borrowings under its asset-based revolving credit facility.

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Gen Z investing in cryptocurrency BTC, ETH and meme stocks AMC, GME

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The next generation of investors are super online ⁠— instead of traditional investments, many Gen Z and young millennial investors, from teens to those in their early 20s, are bullish on cryptocurrency and the technology that surrounds it.

This includes digital coins and blockchains, like bitcoin and ethereum; meme coins, like dogecoin; NFTs, or nonfungible tokens; and DeFi, or decentralized finance.

Some have spent the bulk of their savings on these type of investments: Nearly half of millennial millionaires have at least 25% of their wealth in cryptocurrencies, according to a new CNBC Millionaire Survey. More than a third of millennial millionaires have at least half their wealth in crypto and about half own NFTs.

Young investors have also taken part in recent meme stock rallies, which occur when retail investors buy up shares of stocks shorted by Wall Street hedge funds, like GameStop and AMC Entertainment. In part, the investors hope to force hedge funds to pay, overcoming what they see to be an inefficient system.

One reason young people have turned to alternative investments like crypto is simple: Many just don’t trust traditional investment institutions, as Allison Reichel, 23, tells CNBC Make It. They prefer to rely on their own research rather than use insights from traditional institutions, like financial advisors from legacy firms.

That includes Reichel herself. While working on her PhD in economics, Reichel is also a senior editor at crypto news site Blockworks in Washington, D.C. She started to invest “heavily” in crypto this year, and her crypto holdings account for most of her portfolio, she says. Reichel plans to hold her bitcoin and ethereum long-term.

Allison Reichel, 23, says she invests most of her income in cryptocurrency.

Courtesy of Allison Reichel

But this distrust isn’t the only thing driving young people to invest in cryptocurrencies and meme stocks. First, many have a genuinely positive outlook on blockchain technology. And second, at the same time that they feel disconnected from traditional investments, many are finding community, and sometimes fun, in the crypto space. They want to invest in what they connect with, whether it be stocks, coins or digital assets.

CNBC Make It talked to several Gen Z and young millennial investors, like Reichel, about how these factors impact where they choose to put their money, and why they’re still investing with caution.

‘I’m big on the technology’

Although some young traders bet on altcoins and attempt to turn a quick profit through buying and selling, many plan to “hodl” their favorite cryptocurrencies for the long haul.

“In any crypto, you have those super strong network effects where people believe in it so much that they’re like, ‘I’m never selling because I believe it’s the future of finance,'” Reichel says. “I see the long-term applicability and use of crypto,” she says of her own plans to hold.

That’s true of many young investors, who believe in the technology itself.

While doing research for her PhD, Reichel was inspired by how bitcoin was being used to help those in need in different countries. In Venezuela, for example, crypto was a way that families could still receive money from relatives in the U.S. during a time when the president wasn’t allowing humanitarian aid.

And although its high price may make owning bitcoin seem unattainable, Reichel points out the option to buy fractional shares called satoshis.

Similar reasons led 23-year-old Kyla Scanlon to begin investing in bitcoin and ethereum during college in 2016. “I really liked the application that [bitcoin] has for people who are unbanked. My whole life thesis is, ‘How do we create financial accessibility and equality for everybody?’ I think crypto is one step in allowing people who don’t have access to traditional methods like banks to do so,” she says.

Kyla Scanlon, 23, says she began investing in bitcoin and ethereum in 2016.

Courtesy of Kyla Scanlon

Scanlon first started trading options in high school and began working in asset management after graduating from college, which has boosted her confidence in her personal investment decisions, she says. Her core cryptocurrency holdings still consist of bitcoin and ethereum, and she also owns stock in companies like Roblox, Facebook and Etsy.

Scanlon is also bullish on blockchain technology, which is a decentralized digital ledger that documents cryptocurrency transactions and other information. “I don’t know if bitcoin will ever be like a currency, but I’m big on the technology,” she says.

Kayla Kilbride, a 24-year-old known on financial TikTok as @girlstalkstocks with over 108,000 followers, has “a growing confidence in bitcoin and ethereum specifically,” due to the capabilities of each blockchain.

Kilbride began investing in bitcoin and ethereum earlier this year, starting with small amounts here and there. She has just a few hundred dollars invested in cryptocurrency, but plans to continue to grow her holdings. In lieu of a full-time job, she currently day trades and sells NFTs of her social media content to earn income.

The risk was worth it because I liked the technology.

“As I began to understand the blockchain and the technology behind it, that is when I felt comfortable saying ‘OK, even if I invested when bitcoin was priced at $60,000 and it drops down to, let’s say, $20,000 or even lower, I can still support it, even if I lose money in the endeavor,'” Kilbride says. “The risk was worth it because I liked the technology.”

Many financial experts view cryptocurrency as a speculative, volatile and risky investment that can be susceptible to fraud.

But this doesn’t worry Reichel, Scanlon and Kilbride much, in part because they’re intentional with their investments.

Reichel is extremely bullish on bitcoin’s future value, but only invests what she can afford to lose. “I’m comfortable losing it because I make sure that I have all my bills paid,” she says. “Obviously it’s great when the gains come, but for me, [bitcoin is] truly something that I believe has the potential to revolutionize monetary regimes throughout the world.”

A distrust with traditional institutions

Of course, many Gen Z and young millennial investors initially turned to cryptocurrency as a way to avoid traditional financial institutions, but still build wealth.

Reichel, Scanlon and Kilbride, who all research on their own and invest without the help of financial advisors, say part of their distrust stems from witnessing inequitable and inefficient financial systems.

The younger generation worries about their wealth and retirement, Reichel says. They don’t want to rely on the same traditional systems that their parents did. “I think a lot of people see inefficiencies and really want to change it,” she says.

Scanlon agrees. She also believes concerns over inflation are driving some interest in cryptocurrency among young people.

And with crypto, the barrier to entry is often low.

“It’s about accessibility,” says Cooper Turley, a crypto strategist at ethereum-based streaming app Audius. “With most tokens, there is no IPO. Retail investors have the same opportunities to contribute to and earn value from early stage [crypto] projects the same way venture capitalists do.”

Cooper Turley, 25, says he began to invest in cryptocurrency in 2017.

Courtesy of Cooper Turley.

Turley, 25, invested in bitcoin and ethereum in 2017 while in college, and now, he says those investments have made him a millionaire. Turley is an angel investor in the space, he says, and also acts as an advisor for Variant Fund, a crypto venture firm.

“This paradigm shift of democratized ownership paired with 24/7 trading and always-on exchanges is far more native to an internet-savvy generation than using a brokerage,” he says.

Still, it’s important to note that there are significant downsides to crypto. Experts warn investors to be cautious when putting money into cryptocurrency; it can be extremely volatile and it’s possible to lose your entire investment.

A love of memes

Many young investors also choose to have fun with their investments by buying meme coins, like dogecoin, and meme stocks, like GameStop and AMC Entertainment.

“Crypto and meme stocks are more memorable to young investors than traditional companies,” Turley says. “Young investors care far less about the bottom line of a corporation and far more about a meme or narrative they can collectively share with their friends.”

Dogecoin, for example, launched in 2013 based on the “Doge” meme, which portrays a shiba inu dog. Its creators didn’t intend for dogecoin to be taken seriously, but it is now one of the top 10 cryptocurrencies my market cap, with a market value of over $22 billion.

Kilbride sees dogecoin as a way to introduce people to crypto. “Dogecoin, being very cheap, is affordable. It’s easy to understand,” Kilbride says, which is part the reason she bought it too. “I’ve invested more in bitcoin and ethereum because of dogecoin [gains].”

Kayla Kilbride, 24, began investing in crypto earlier this year.

Courtesy of Kayla Kilbride

“Meme stocks take away those super scary aspects of finance,” Reichel says. “When you think about the stock market, the typical picture is all of these older guys in suits who have been running it for years.” That’s not true for something like dogecoin.

There’s also the feeling that seemingly everyone is getting in on the action. Though many meme coins are entirely speculative, very risky and sometimes fraudulent, it can be difficult to not jump in on the trades. “It can be hard with all the FOMO (fear of missing out), because you see all these coins taking off,” Reichel explains.

For Turley, “the best example of a meme coin I’ve invested in is unisocks, or $SOCKS, a digital token representing a claim on a physical pair of socks,” he says.

But sometimes, it’s about more than fun. For many, the rallies of meme stocks like GameStop and AMC symbolized standing up to big-name Wall Street hedge funds, a desire that stems from a feeling of “a lack of access for the ‘little man,'” Kilbride says.

To Scanlon, “there’s this underlying resentment because our parents were able to have a 60/40 stock/bond portfolio and be fine and retire with no worries at all. But that’s not the case for this generation.”

Yet despite putting money into “fun” investments, these young investors still aim to be somewhat careful.

For Kilbride, that means avoiding any coins that seem sketchy. “When there’s so much hype … a lot of people are getting tricked, a lot of other people think it’s funny, but when you don’t have so much [money] where you can just lose, it’s too dangerous,” she says.

‘I invested as part of the community’

While traditional investments feel inaccessible to the next generation of investors, many are finding a sense of community in alternatives like cryptocurrency and meme stocks.

“I say the C in AMC stands for community, because I think that’s what [the frenzy] is about,” Scanlon says. “Post-pandemic, I think there’s a sense of loneliness. People are finding community within the stock market, in the Discord servers, in Reddit. People are just craving community because we don’t have that in the same way that we used to.”

Buying into things like GameStop and AMC is partially about being a small part of the movement, Kilbride says.

“When GameStop first rallied back in January, I invested as part of the community. I did not invest very much and I invested near the top, just to hold the line. I was like, ‘I want to purchase to be able to print it out and frame it on my wall,'” she explains.

Companies that maybe never perform that well were having this crazy moment. I was like, ‘I want to be part of this.’

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YouTube secures a big win in the EU over copyright

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YouTube’s logo is seen against the flag of the European Union.

Omar Marques | SOPA Images | LightRocket | Getty Images

LONDON — The European Union’s top court on Tuesday ruled that Google’s YouTube and other online platforms should not be held liable for copyright-infringing uploads in certain situations.

As things stand, online platforms “do not, in principle, themselves make a communication to the public of copyright-protected content illegally posted online by users of those platforms,” the European Court of Justice said.

However, YouTube and other platforms could still be held liable if it “has specific knowledge that protected content is available illegally on its platform and refrains from expeditiously deleting it or blocking access to it,” the ECJ added.

The EU recently introduced copyright reforms aimed at making its rules fit for the digital age. One part of the law which drew significant controversy at the time meant that YouTube, Facebook and other platforms would have to install filters to block users from sharing copyrighted material.

Tuesday’s ruling focuses on old copyright rules in the bloc. The case arose from a lawsuit from music producer Frank Peterson against YouTube over the uploading of recordings in 2008 over which he claimed to hold the rights.

The news marks a win for YouTube and other content-sharing sites, which have long tussled with artists and musicians over how to compensate them fairly for work that gets distributed on the web.

YouTube has clamped down on copyright violations over the years, a move that has drawn the ire of some popular creators on the platform. Tensions over YouTube copyright action escalated in 2020 as the company increasingly automated content moderation due to coronavirus lockdown restrictions.

A YouTube spokesperson said the company paid over $4 billion to the music industry over the past 12 months, with 30% of that sum coming from monetized videos.

“YouTube is a leader in copyright and supports rights holders being paid their fair share,” the spokesperson said Tuesday. “That’s why we’ve invested in state of the art copyright tools which have created an entirely new revenue stream for the industry.”

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