SoftBank CEO pays price for tech bets with $20 billion loss at Vision Fund

Masayoshi Son is paying a steep price for his outsized wagers on money-losing technology companies. 

Son’s SoftBank Group Corp. reported a record annual loss at its Vision Fund unit as a selloff in tech shares pummeled the value of its portfolio companies, including public holdings like Coupang Inc., Uber Technologies Inc. and Didi Global Inc. The Vision Fund swung to a loss of 2.64 trillion yen ($20.5 billion) for the year ended Mar. 31, compared with a 4.03 trillion yen profit in the previous year. 

The world’s largest tech fund has been grappling with pandemic-driven writedowns and a market rout that hammered the valuations of public and private tech companies. SoftBank’s own stock had dropped 17 per cent this year through Thursday’s close.

While Son has a reputation for making aggressive and unpredictable strategic moves, he spent most of a 90-minute press conference reassuring investors that he knows how to weather difficult times. He began with slide entitled “Concerns about SoftBank?” and then addressed questions about his debt load, the decline in his equity holdings and his cash position.

“In terms of personality, I do like to play offense,” said Son. But with the “pandemonium” of Covid-19 and war in Ukraine, he understands now is the time to play defense. “When it rains, you open an umbrella,” he said.

SoftBank shares rose about 4 per cent on Friday, after an 8 per cent drop on Thursday.

Analysts noted the somber tone, which came after several quarters in which the CEO said SoftBank was making its way through a technology “winter.”

“Son’s comments were even bleaker than those made at the 3Q results stage,” Citigroup Inc. analysts including Mitsunobu Tsuruo wrote in a research note.

Son said SoftBank’s “safe driving” in recent months has solidified its financial position. He explained in a slide that the company has allocated 2.9 trillion yen of cash, or roughly twice the 1.3 trillion yen due for bond redemptions in fiscal 2022 and 2023.

The Vision Fund unit has also dramatically scaled back its investments, doling out just $2.5 billion in the January-to-March quarter. That’s down from $10.4 billion a quarter earlier and far below the peak of $33.3 billion in one quarter in fiscal 2018.

He said SoftBank will continue to pull back on new investments in the current fiscal year.

“I would say compared to last year, the amount of new investment will be half or could be as small as a quarter,” he said.

Son argued that SoftBank is less vulnerable to unpredictable hits now that it has been in the past. Its loan-to-value ratio fell to 20.4 per cent, comfortably below to 25 per cent target he thinks of as the maximum. 

SoftBank’s net asset value -- another key metric for Son -- dropped to 18.5 trillion yen, far below its peak. But SoftBank is less vulnerable to the Chinese government’s crackdown on its tech sector, with Alibaba Group Holding Ltd. -- his most valuable holding -- accounting for 22 per cent of its NAV compared with 59 per cent before.

Son is taking a personal hit of about $2.4 billion from his decision to get into trading public stocks. SoftBank set up a controversial side venture in 2020 called SB Northstar, which was aimed at using the company’s excess cash to make some money picking stocks. Son took a personal 33 per cent interest in the unit, while the company held the rest of the equity.

With tech stocks crashing in the last quarter, Northstar got hammered. SoftBank said it would recognize a loss of 670 billion yen for the last fiscal year, while Son is on the hook for 315 billion yen.

SoftBank’s portfolio is full of money-losing tech companies that traded at sky-high valuations during the years of easy money. Blockbuster listings by firms like South Korean e-commerce giant Coupang, China ride-hailing pioneer Didi and Chinese online property platform KE Holdings Inc. have gone from being the main driver of profit growth, to biggest drags. 

Coupang shares dropped 40 per cent in the first quarter, Didi fell 50 per cent and KE Holdings slid 39 per cent. Scandals and missteps from WeWork Inc., Wirecard AG and Greensill Capital have also dented Son’s reputation for picking startups.

“People thought Son could make good investment decisions,” said Mio Kato, an analyst at LightStream Research who publishes on SmartKarma. “Now there is less evidence that SoftBank management’s investment decisions are good. Wirecard and WeWork are among the examples. When the environment changes, they are no longer effective.” 

A year ago, SoftBank set a record for highest quarterly profit in Japanese history and the company made a full-year profit of 5 trillion yen. This year, with the Vision Fund losses, SoftBank Group had a annual net loss of 1.71 trillion yen. 

Son shifted his tone near the end of the press conference, however, and began to talk about the opportunities to play offense. He expressed bullishness about the prospects for Arm Ltd., the chip designer that is preparing for an initial public offering. He detailed how the business is growing and said the company may well become the most valuable asset in its portfolio.

Son pointed out that the path to an IPO has been cleared by the removal of the rogue CEO of Arm’s China business, a controversy that has lingered for two years after the board fired the executive and he refused to leave. Pressed about the precise timing for Arm’s IPO, Son pointed out that markets are now tumultuous and demurred to give specifics because his lawyers would object.

“We will thoroughly protect ourselves while playing offense,” Son said.