SoftBank needs a vision check
Summary
The tech investor is sounding an apologetic note after huge losses last quarter. But investors have been here before. A more fundamental realignment is neededSoftBank’s chief executive officer, Masayoshi Son, says he is embarrassed and remorseful after the company reported record losses. A little humility would help leaven SoftBank’s aggressive investment style and probably lift returns over the long run. But the odds are not necessarily in investors’ favor—next time markets bubble up again, Mr. Son’s brash style may resurface as well.
The Japanese technology investor on Monday reported its biggest quarterly loss ever: $23.4 billion for the three months ending in June. Investment losses on its $100 billion Vision Fund and its predecessor amounted to $22 billion for the quarter.
That has almost wiped out all the cumulative gains delivered by the technology investment funds since the first Vision Fund was launched in 2017. The Nasdaq Composite Index has doubled since the middle of 2017, even after the recent selloff.
Investors may hope that these record losses will help concentrate minds and result in a more disciplined investment strategy. Mr. Son says the Vision Fund division will cut operational costs substantially and increase discipline for new investments. But if what’s past is prologue, Mr. Son’s aggressive investment style will return soon after the current storm settles.
SoftBank invested heavily in technology companies last year as the pandemic drove valuations sky high, resulting in hefty losses this year. The splurge took place only a couple of years after it booked billions of dollars of losses on office-sharing company WeWork in 2019. Vision Fund 2, which is mostly funded by SoftBank itself, has been especially hard hit: as of June, the fund has lost $10 billion since its 2019 inception.
All this comes as the Vision Fund is taking on an ever more important role for the company. The Vision Fund division now accounts for nearly half of SoftBank’s net asset value. SoftBank’s Alibaba stake used to account for a bigger chunk, but China’s crackdown on its consumer tech companies has devastated Alibaba stock. The stake is now around 21% of SoftBank’s net asset value, down from 59% nearly two years ago. That’s partly because shares of the Chinese e-commerce giant have fallen more than two-thirds since its 2020 peak, but SoftBank has also been monetizing the stake to raise cash.
SoftBank said Monday it raised $10.5 billion from prepaid forward contracts using its Alibaba shares. The company got upfront cash from the contract, which it will settle with Alibaba shares or cash later. It is also looking to list chip designer Arm, though the downturn in semiconductor stocks may affect valuations and timing.
Technology stocks have rebounded in the past two months, which should help SoftBank this quarter. But it’s too early to say if the tech funding winter, especially for unlisted companies, is over yet.
More importantly, it’s still far too early to tell whether SoftBank’s investment style will really change for the better. Contrition is all well and good. The real test will be how SoftBank manages its investors’ hard-earned dollars in the next up-cycle.
