TOKYO (BLOOMBERG) - Masayoshi Son is finally disclosing the damage from SoftBank Group's bets on WeWork and Uber Technologies.
The Japanese investment powerhouse on Wednesday (Nov 6) reported its first quarterly operating loss in 14 years - about US$6.5 billion (S$8.5 billion) - after writing down the value of a string of marquee investments. It swallowed a charge of 497.7 billion yen (S$6.21 billion) for WeWork, whose spectacular implosion turned the once high-flying shared-office start-up into a Silicon Valley punchline.
The losses call into question billionaire founder Son's dealmaking approach just as he's trying to raise an even larger successor to his US$100 billion Vision Fund. The investment vehicle had been a driver of profit growth at SoftBank, contributing over US$14 billion in mostly paper gains over the past two years.
Now, the shrinking valuation of Uber and WeWork, once among the brightest stars in the SoftBank constellation, raises the prospects of more write-downs in the Vision Fund's portfolio with its high exposure to businesses that prioritise growth over profitability.
On Wednesday, SoftBank's chairman took some blame for his poor decisions. "There was a problem with my own judgment, that's something I have to reflect on," said an unusually sombre Son.
But the entrepreneur then launched into a spirited defence of his track record. He began by showing on a giant screen several newspaper headlines, saying media reports had pegged SoftBank or WeWork - or both - as bound to go bankrupt.
Then he launched into an exposition of how SoftBank had made money for its investors: Even Slack Technologies and Uber had proven profitable bets relative to their acquisition cost, despite subsequent nose-dives on public markets. "I'm going to explain things as they are, no excuses."
The operating loss was 704.4 billion yen in the three months ended Sept 30, the Tokyo-based company said in a statement. That easily surpassed the 230.8 billion yen average of analysts' projections, and compared with a 705.7 billion yen profit a year earlier. Its signature Vision Fund - the world's single largest pool of start-up investments - reported a 970.3 billion yen loss in the quarter.
SoftBank said the fund's 88 investments were worth about US$77.6 billion, a 9.8 per cent gain in value relative to the cost at which it acquired the stakes. The company reported a gain in valuation for 25 companies, the same number that saw their worth decline.
SoftBank reported 537.9 billion yen of unrealised losses in a plethora of investments from Uber to WeWork. Analysts had predicted a charge to be in excess of US$5 billion and as much as US$7 billion. The co-working start-up was valued at US$7.8 billion at the end of September - a precipitous fall from about US$47 billion in January.
Late last month, WeWork secured a US$9.5 billion rescue package from SoftBank, a deal that handed 80 per cent of the company to the Japanese conglomerate. That's on top of the more than US$10 billion SoftBank and its Vision Fund have already invested into the co-working giant. SoftBank has said it didn't get a majority of voting rights, meaning its troubled investee will be treated as an associate, not a subsidiary - potentially keeping its balance sheet free of some US$22 billion of debt and US$47 billion in looming lease-payment obligations.
The deal includes US$5 billion in new financing and an acceleration of a US$1.5 billion existing commitment. SoftBank will also offer to buy as much as US$3 billion from existing shareholders. WeWork's founder Adam Neumann left the company's board as part of the package, replaced by SoftBank executive and newly appointed executive chairman Marcelo Claure.
"Son's handling of WeWork raises some fundamental questions about his investment strategy that need to be addressed," Jefferies Group senior analyst Atul Goyal said ahead of the earnings release.
"There will be more failed investments in the future, how does he plan to handle them?"