Softbank founder Masayoshi Son has promised to invest more selectively and hold more money in the future.
(Photo: Reuters)
Tokyo So far, Masayoshi Son has exuded optimism even when Softbank suffered high losses. Even if the numbers were red, the founder of the Japanese investment group continued to invest rapidly with his Softbank Vision Fund 1 and 2. This Monday, when he presented the latest quarterly balance sheet, there was no longer any sign of it.
Buoyed by the slump in global tech stocks and the fall in the yen, Son reported a net loss of 3.2 trillion yen. “This is the biggest quarterly loss in our history and we take it very seriously,” he said stonily.
Shortly thereafter, Son announced a major austerity program at the heart of the world’s largest technology investors. “We have to drastically reduce the number of employees in the Vision Fund and also cut costs at the corporate level,” said Son. Instead of going on the offensive as usual, Japan’s legendary investor is now switching fully to the defensive.
Softbank is another major investor that has been hit hard by the crash in stock prices in general and technology companies in particular. Berkshire Hathaway, the holding company of legendary US investor Warren Buffet, even posted a loss of $44 billion for the past quarter.
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But Softbank’s crisis is more dramatic, as the company has focused on riskier investments in mega-startups that the group then intends to take public for a profit. Over the past two quarters, Softbank’s two vision funds have lost nearly 6 trillion yen. As a result, almost all accumulated profits have disappeared into thin air.
The current value of the 473 companies that Softbank manages in the two funds has fallen to just 112 billion yen. Only at the end of 2019 was the value lower, namely just in the red. At that time, crises such as that of the shared office provider WeWork and the mobility service Uber tore the balance sheet into the basement.
But Softbank was saved by the boom in tech stocks, which was triggered by the money glut during the corona crisis and the worldwide triumph of working from home. A year ago, Son’s fund was valued at $54 billion – before the even steeper fall came.
Son sees no end to the crisis
But this time it seems there is more at stake for Son. The founder is now questioning his business model: rapid investing in a swarm of companies with which Son wants to advance the development of artificial intelligence (AI) and robotics.
With the Vision Fund 1 alone, Son had invested almost $100 billion from Softbank and, above all, financially strong partners in so-called 88 unicorns, i.e. start-ups valued in billions, since 2017. These include the transport service provider Didi, the online retailer Coupang and the German used car platform Auto1.
With the second fund, he changed his strategy and invested smaller amounts in smaller companies. But even then he overestimated himself, Son admitted on Monday. “I thought we could get a good return,” Son said. Softbank has therefore invested more “than we should have invested.” In fact, the value of the second vision fund is now negative, while the first is still positive thanks to successful IPOs influenced.
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In contrast to the past, Son is also skeptical that the situation will improve again quickly. Some investors felt they should buy again now. “But I’m frowning this time,” Son explained. “Three months or three years” – he doesn’t know how long the downturn in tech stocks will last given the Ukraine war, the Taiwan crisis, rising interest rates and prices and the pandemic would continue. “Usually at times like this, there’s a lot of stock selling,” Son said.
Harsh criticism of the startup industry
The Softbank founder is particularly harsh on the start-up industry shortly before his 65th birthday. “The bosses of the unicorns still believe in their high valuations,” he said. As long as unlisted companies are valued many times higher than listed ones, he would wait and see, Son promised. “The winter for privately held companies could be longer last.”
To hibernate, Softbank is curbing spending even more than Son announced six months ago. The criteria for investments are being tightened further, and new investments are being massively reduced. In the most recent quarter, Son invested just $600 million in startups, a thirtieth of what it was a year ago. Fresh money should be concentrated on start-ups in the existing portfolio, said Son. In this way he wants to ensure the financial health of the group.
Net asset value, which is the value of assets minus net debt, is flat at 18.5 trillion yen despite the losses as Softbank deleveraged. But Son is not comforted by that. He never spoke as usual about the AI revolution, which he sees as his mission. Instead, he said at the end of the 90-minute press conference. “I apologize for the very depressing results report, but I wanted to be transparent.”
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