SoftBank’s quarterly profits erased on losses in vision fund
The results could dampen investor enthusiasm for founder Masayoshi Son’s big bets on untested start-ups, but he has Elliott in his corner
Tokyo — Quarterly profit at SoftBank Group was almost wiped out as the Japanese technology giant was hit for a second straight quarter by losses at its $100bn vision fund.
Wednesday’s dismal results could further dampen investor enthusiasm for founder Masayoshi Son’s big bets on untested start-ups. While Son told a news conference that SoftBank had turned a corner, he also said he has been forced to scale back a second vision fund while investing with only SoftBank’s own capital.
That marks a major climbdown from July, when SoftBank said it had attracted $108bn in pledges for a second mega-fund. More pointedly, it shows how the bailout of start-up WeWork last year, and other missteps, have put a chill on the tech investing scene and given SoftBank shareholder US hedge fund Elliott Management ammunition to lobby for change.
“We have caused a lot of concern,” Son said in Tokyo following the results, adding that he needs to “give everyone piece of mind” to secure outside funds for vision fund two.
Group profit was ¥2.6bn ($24m) in the October-December quarter compared to ¥43bn a year before. The vision fund posted an operating loss of ¥225bn for the quarter compared with a ¥176bn profit in the same period a year earlier.
But Son, known for an ebullience and charisma that is still rare in corporate Japan, said the company’s performance is already improving. “The tide is turning,” he said.
“Softbank should focus on one thing, shareholder value creation,” said Jeffries analyst Atul Goyal in a note to clients ahead of the earnings.
Son pointed to a rally in prices at the vision fund’s handful of listed investments and news overnight that a US federal judge had rejected an anti-trust challenge to the proposed merger of SoftBank’s Sprint and T-Mobile US.
Shares of SoftBank finished up 12% in Tokyo before the results and after the US court decision.
Son has long argued that SoftBank’s shares are undervalued, a position shared by Elliott, which has recently emerged as a prominent shareholder. Elliott, one of the world’s best known activist investors, is pushing for changes including $20bn in stock buybacks, sources said last week.
SoftBank has held discussions with Elliott and is aligned on improving shareholder value, Son said, adding that while open to potentially buying back shares, he was in “no hurry” to sell part of a 26% shareholding in Alibaba to fund buybacks.
The vision fund, which is backed by Saudi Arabia and has single-handedly changed the face of tech investing, said it had invested $74.6bn in 88 companies as at the end of December, when those investments were worth $79.8bn.
Analysts have said it is difficult to evaluate SoftBank’s performance due to a lack of disclosure around vision fund’s internal valuations.
Son’s investing credentials took a hit in the August-September quarter when the vision fund recorded an $8.9bn operating loss. Since then, a slew of portfolio companies — from hotel-booking platform Oyo to cloud robotics firm CloudMinds — have cut jobs and come under pressure to demonstrate the long-term viability of their business models.
The fund itself has also lost key employees.
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