“The world is in great confusion” : this sentence pronounced at a press conference this afternoon by Masayoshi Son, the CEO of the Japanese giant Softbank, looked like an argument to justify the -catastrophic- situation of the company he heads, but it also sounded like an admission of astonishment.
In fact, faced with the collapse in the value of his portfolio on the stock market, which caused a record quarterly loss of 26.2 billion dollars in May (for the 1st fiscal quarter of 2022), the CEO resolved to take drastic recovery measures, starting with staff reductions in its Vision Fund investment arm.
The explanation for rising interest rates and political instability
Speaking to comment on the company’s results, the CEO of Softbank explained that while this first quarter of 2022/23 for SoftBank had been marked by significant investment losses, mainly related to its Vision Fund 1 and 2 funds ( for more than 2.8 trillion yen, or 20 billion euros), it was also because of rising interest rates and political instability that hit markets around the world.
For the record, Masayoshi Son had however radically reduced his investment activities: the Vision Fund branch approved only $600 million in new investments in the first quarter, against… $20.6 billion in the same period l ‘last year.
So today, the billionaire promised to go further: he limited the second fund (Vision Fund 2) to the management of his current investment portfolio, while planning staff reductions at the Vision Fund and cost reductions across the group.
“We have to cut costs at all costs, there will be no sacred grounds,” Mr. Son said.
Exaggerated prices, recklessness in the face of the bubble effect, errors of assessment
On the sidelines of the emergency measures to rectify the situation, the billionaire began a mea culpa by listing the errors that led to this catastrophic situation: he thus declared that the Vision Fund 2, which took relatively modest stakes but in a large number of companies, had invested at exaggerated prices.
“We were in a sort of bubble on valuations,” he said.
In the end, the portfolio of 269 companies of the second fund Vision Fund 2, whose acquisition cost 48.2 billion dollars, was worth only 37.2 billion dollars at the end of June.
SoftBank wrote down the value of the unlisted assets of its two Vision 1 and 2 funds by 1.14 trillion yen ($8.45 billion).
Yet there had already been warnings when notably the CEO suffered a series of high-profile setbacks following the big bets of the first fund Vision Fund 1 in start-ups in the final stages of development – like that of WeWork (sharing of offices) in which Softbank invested more than 10 billion dollars – which turned sour, which had prompted it to tighten control of investments in the second fund.
“If we had been more selective and invested better, we wouldn’t have taken this big hit,” Son said.
Start-ups less in the odor of sanctity on the markets
Among the publicly traded investments that fell in the quarter were warehouse robotics company AutoStore and artificial intelligence company SenseTime.
Falling IPO volumes combined with growing market skepticism about chronically loss-making start-ups have severely dried up capital inflows for SoftBank. Which still hopes to be able to IPO the chip designer Arm after the failure of a sale to Nvidia.
Seeking cash and share buybacks
To raise funds, SoftBank pulled out of companies such as Uber Technologies and door-to-door shopping platform Opendoor Technologies, for a total gain of $5.6 billion. SoftBank sold Uber at an average price of $41.47 per share, down from a Friday closing price of $32.01.
The group has used more than two-thirds of the capital of a 1 trillion yen buyback program launched last November to back its shares, which have fallen about half from highs reached in March last year. .
SoftBank on Monday announced an additional share buyback program worth up to 400 billion yen, which will run until August next year. Shares closed 0.7% higher ahead of the earnings release, in line with the benchmark Nikkei 225 index.
Tech in a bad patch
Witnessing the difficulty of the current economic climate for tech, the hedge fund Tiger Global, Son’s major competitor on the markets, had underestimated the impact of galloping inflation on the markets: he saw his fund principal fall by 50% in the first half of the year.