The Thrills and Spills of Corporate Side Hustles: High Returns and the Risks Faced by Listed Companies

The Thrills and Spills of Corporate Side Hustles: High Returns and the Risks Faced by Listed CompaniesWhile many salaried workers lamented underwhelming investment returns at the end of 2024, some listed companies quietly reaped substantial profits from their side-hustle investments. Employing diversified strategies spanning stocks, cryptocurrencies, fixed deposits, and government bonds, these companies achieved remarkable returns

The Thrills and Spills of Corporate Side Hustles: High Returns and the Risks Faced by Listed Companies

While many salaried workers lamented underwhelming investment returns at the end of 2024, some listed companies quietly reaped substantial profits from their side-hustle investments. Employing diversified strategies spanning stocks, cryptocurrencies, fixed deposits, and government bonds, these companies achieved remarkable returns. For instance, Tencent reported a staggering 12.09 billion in fixed deposit interest income in Q3 2024; Jiuan Medical garnered 252 million in six months from its $4.2 billion investment in US Treasury bonds. The higher-risk, higher-reward world of stock investment also saw numerous successes, including (but not limited to) Liangmianzhen, Youngor, New Hope, Shaanxi Coal Industry, and China Mobile. Notably, China Mobiles Q3 investment income and fair value changes totaled a massive 18.8 billion comparable to the annual GDP of some counties showcasing its investment prowess. However, the investment world is rife with survivorship bias; despite numerous successes, the challenges of corporate side-hustle investing remain significant.

I. Unexpected Side Hustle Profits: Case Studies of Listed Companies

From the beginning of 2024 to November 30th, the total market capitalization of A-shares rose from 87.66 trillion to 97.03 trillion, while that of Hong Kong stocks increased by almost 10%. This market surge triggered a wave of new account openings among Gen Z investors and rekindled the interest of many millennials. Several listed companies capitalized on this, achieving massive gains.

Liangmianzhen, once dubbed a "toothpaste company that missed its calling as an investment guru" for its substantial profits from selling shares in companies like Citic Securities, Bank of Communications, and China Coal Energy (over 2.4 billion in total), staged a strong comeback in 2024 after a period of investment losses due to falling share prices of its heavy holdings. Thanks to Citic Securities reaching a historical high in early September, its Q3 report showed a fair value gain of 89.33 million, reversing previous losses.

Youngor, controlled by the "Ningbo Stock God" Li Rucheng, also enjoyed significant returns. Youngor initially invested in Ningbo Bank in 1997 at 1.01 per share, acquiring 179 million original shares. Following the bank's IPO and subsequent surge in share price, Youngor cashed out 10 billion between August 2020 and February 2021, achieving over 55 times its initial investment. While Li Rucheng faced setbacks after declines in Ningbo Bank and Citic Group share prices, adjusting his strategy accordingly, the significant increases in these holdings from the start of 2024 to the end of November yielded an estimated floating profit of approximately 47 billion.

Beyond these established investment veterans, several newer listed companies also saw remarkable gains in 2024. New Hope reported 1.4 billion in Q3 investment income, more than triple its operating profit for the same period. Shaanxi Coal Industry achieved 1.8 billion in Q3 from investments in associated and joint ventures, while Jiuan Medicals Q3 investment income reached 590 million, a 3885.53% year-on-year increase, partly due to its holdings in Xiaomi. Tencent, leveraging its substantial resources and diversified strategy, reported a combined Q3 investment income and profit from associated and joint ventures totaling 18.9 billion, further boosted by 2.621 billion in arbitrage profits. Jiuan Medical also profited 252 million (a 6% return) in the first half of 2024 from its 4.2 billion investment in US Treasury bonds.

II. The Bitcoin Casino: High-Risk, High-Reward Investment

Bitcoin's price surge past $100,000 on December 5th, 2024, representing a near 140-fold increase over a decade, captured widespread attention. The day before, Hong Kong-listed Meitu announced the sale of its entire holdings of Ethereum and Bitcoin, generating a profit of approximately 571 million, exceeding its annual net profit.

Elon Musk's Bitcoin investment is widely known. After publicly declaring his enthusiasm for Bitcoin in 2021 and subsequently having Tesla purchase $1.5 billion worth, Tesla's Bitcoin holdings are currently estimated to be worth approximately $972 million, representing a profit of around 4.6 billion. However, Tesla doesn't hold the largest Bitcoin stash. MicroStrategy, a US-listed company, held approximately 402,100 Bitcoins as of December 1st, 2024, acquired at a total cost of approximately $23.4 billion, making it the largest Bitcoin holder among US-listed companies. This investment is estimated to have yielded a profit of approximately 121.8 billion.

While the A-share listed company Zhidu also holds Bitcoin, it's classified as an intangible asset, preventing it from directly benefiting from price increases on its financial statements. Most listed companies remain cautious about Bitcoin investments due to its extreme volatility and high risk.

III. Core Business Strength Underpins Side-Hustle Success

In 2024, many listed companies actively pursued side-hustle investments; Dongfang Fortune reported over 1300 announcements regarding external investments in the Hong Kong and A-share markets from September onwards. New Hope plans to increase its holdings in Minsheng Bank, while MicroStrategy intends to raise $42 billion through equity financing and bond issuance over the next three years to buy more Bitcoin.

However, the foundation of successful side-hustle investments is a robust core business. The core business dictates the amount of capital available for these ventures. Jiuan Medical couldn't have invested 4.2 billion in government bonds without the massive profits from its antigen test kits; Tencent's substantial resources stem from its success in gaming and social media. The stability of the core business also influences the sustainability of side-hustles. Listed companies have a responsibility to their shareholders, and the stability of their primary operations underpins their ability to invest in secondary ventures.

Many listed companies with successful side hustles also boast strong core businesses. China Mobile's revenue for the first three quarters of 2024 reached 791.5 billion, with a non-net profit of 100.5 billion; Shaanxi Coal Industry reported a non-net profit of 16.35 billion in Q3, boasting 702.8 billion in undistributed profits; and Youngor's apparel business maintains a gross profit margin consistently above 60%.

A thriving core business provides the resilience to navigate the risks inherent in side-hustle investments. Even Youngor, despite its investment prowess, experienced significant asset impairment charges in 2017 due to falling share prices of its heavy holdings. Tesla's Bitcoin holdings also saw substantial cost decreases due to market volatility. Listed companies must carefully assess risks and avoid being forced to sell assets at a loss due to core business failures, as evidenced by Evergrande's forced disposal of Hengteng Network due to crippling debt, thus missing out on potential gains.

Youngor's experience with diversification highlights the inherent risks. After losses in its heavy holdings and real estate ventures, it ultimately refocused on its apparel business. Yunnan Baiyao's significant investments in Tencent, Kweichow Moutai, Yili, and Xiaomi resulted in substantial losses.

In conclusion, while listed companies have achieved impressive returns through side-hustle investments, its far from a guaranteed path to profit. A robust core business is fundamental, while careful risk assessment and a well-defined investment strategy are crucial for success in this high-risk domain. Companies must strike a balance between core and secondary operations, avoiding the pitfalls of prioritizing side-hustle gains over the long-term health and stability of their primary business, lest they ultimately lose more than they gain.