Feb 7, 2023
SoftBank Vision Fund Loses $5 Billion as Tech Slump Persists
(Bloomberg) -- SoftBank Group Corp.’s first earnings report without founder Masayoshi Son went a lot like those he presided over the past few years: The Japanese conglomerate lost billions of dollars on failed startup bets.
SoftBank posted a net loss of 783.4 billion yen ($5.9 billion) for the December quarter, far short of analyst estimates for profit of 205.9 billion yen. The key factor was the Vision Fund segment, which lost 660 billion yen on declining valuations for companies in its investment portfolio.
Son skipped the earnings call after results for the first time on record, leaving his chief financial officer to field questions. Shares tumbled as much as 6% in Tokyo trading, the largest intraday decline in almost three months.
SoftBank charged into startup investing in 2017 with the Vision Fund — a sort of super-sized venture capital effort — and deployed more than $144 billion in hundreds of companies over the next five-plus years. Yet SoftBank tumbled into fiascoes like WeWork Inc. and then ran into a sharp downturn in the technology market as investors soured on money-losing startups. In the most recent quarter, writedowns in closely held companies outweighed a modest recovery in SoftBank’s listed investments, such as Didi Global Inc. and Grab Holdings Ltd.
During a press conference after results, Chief Financial Officer Yoshimitsu Goto skipped the historical references that Son often favored and went straight into numbers aimed at reassuring investors about SoftBank’s stability and prospects. He repeatedly said SoftBank will remain in defensive mode as long as the markets are challenging, although it has “ample cash” to turn offensive in the future.
“What’s most important is to take a conservative approach in evaluating the current environment,” he said, in a dark suit and vibrant blue tie. “I’m still working on making better presentations.”
Goto led with a flurry of numbers, pointing out that SoftBank’s loan-to-value ratio was still comfortably below the 25% target and its net asset value was substantially higher than the share price. He went on to gamely field questions and repeat many of Son’s stock phrases, including that SoftBank aimed to be the “Vision Capitalist for the Information Revolution.”
Son’s decision to skip earnings calls has been viewed skeptically by investors and analysts. The 65-year-old billionaire founded the company four decades ago and has made every significant decision since, so his absence leaves a void in understanding SoftBank’s strategy.
Son turned what was once a stable, profitable telecom company into the world’s biggest startup investor because he believed he could replicate the success he had with early bets like his backing Chinese e-commerce giant Alibaba Group Holding Ltd. But his investment machine has now come to an almost complete stop. In the last quarter, SoftBank put less than $350 million in just a handful of startups, roughly 95% off of its average pace of $6 billion a quarter over the prior five and a half years.
In an interview, Navneet Govil, one of the Vision Fund’s senior executives, argued SoftBank has many strong companies in its portfolio and should be able to profit as the environment recovers. He said there’s an estimated $37 billion of fair value among its mature startups, which should be able to go public once the markets open up again.
“Significant unpredictability remains in the labor markets, future monetary policy road map, as well as corporate earnings,” said Govil, executive managing partner at SoftBank Global Advisers, after the earnings announcement. “Our posture remains defensive, and we’re focused on building resilience.”
Govil said that Vision Fund 2 has about $6.5 billion to spend on fresh investments and, if it expends that, it could contribute additional capital to the existing fund or even start a third Vision Fund, although no decisions have been made.
SoftBank Deals Hit Record Low, Sapping Funding for Startups
The Vision Fund unit has lost money for four straight quarters and has far underperformed peers. Its cumulative performance across the two Vision Funds and Latin American funds went from a gain of $66 billion to a loss of $6.6 billion. South Korean e-commerce giant Coupang Inc. and Indonesia’s GoTo Group were among the publicly traded companies that lost ground in the most recent quarter.
“The quarter was disappointing with Vision Fund losses higher than expected on private asset impairments and additional downside from WeWork debt,” Kirk Boodry, an analyst at Redex Research who publishes on SmartKarma, wrote in a note.
One of the keys to reigniting investment activity at SoftBank lies in a successful initial public offering for Arm Ltd., the chip design firm Son acquired in 2016. The primary reason Son gave for stepping away from the earnings calls was that he wanted to focus on that task, arguing that the British firm could end up pulling off the largest IPO by a chip company ever.
Arm reported solid growth for the latest quarter. Revenue rose 28% from a year earlier to $746 million, driven by an increase in internet-of-things gadget adoption and highly royalty rates in smartphones. SoftBank now plans to list the firm by December.
SoftBank didn’t announce a new share buyback program, a strategy that helped boost its stock price in the past. Goto said such repurchases are “constantly” under discussion at the board.
“We think buybacks are likely in the event of major exits such as an IPO for ARM or sale of Alibaba shares,” said Satoru Kikuchi, an analyst with SMBC Nikko Securities.
Goto explained that Son is certainly better at explaining the corporate vision, but it’s not necessary for a company to detail business strategies every quarter.
“I can’t tell when it will be, but we will all be glad to have Son back, as soon as possible,” he said. “But for now, please bear with us for while longer.”
(Updates with executive comments from fifth paragraph)
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