“The world is in great confusion” : this phrase pronounced at a press conference this afternoon by Masayoshi Son, general director of the Japanese giant Softbank, seemed 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 plummeting value of his portfolio on the stock market, leading to a record quarterly loss of $26.2 billion in May (for the 1st fiscal quarter of 2022), the CEO resolved to take drastic measures to recovery, starting with staff reductions at its investment arm Vision Fund.
The explanation of rising interest rates and political instability
Speaking to comment on the company’s results, the CEO of Softbank explained that although this first quarter of 2022/23 for SoftBank was 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), was also due to rising interest rates and political instability that affected markets around the world.
For the record, however, Masayoshi Son had slashed his investment activities: Vision Fund’s branch approved just $600 million in new investment in the first quarter, versus… $20.6 billion in the same period last year.
So today, the billionaire promised to go further: he limited the second fund (Vision Fund 2) to managing his current investment portfolio, while planning staff reductions at Vision Fund and cost reductions across the group.
“We have to cut costs at all costs, there will be no hallowed ground,” Son said.
Exaggerated prices, recklessness in the face of the bubble effect, valuation errors
Apart from the emergency measures to rectify the situation, the billionaire initiated a mea culpa listing the errors that led to this catastrophic situation: thus he 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 kind of bubble in valuations,” he said.
In the end, the 269-company portfolio of the second Vision Fund 2, which cost $48.2 billion to acquire, was worth just $37.2 billion 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).
However, there had already been warnings when, in particular, 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, such as WeWork (shared offices) in Softbank he invested more than 10,000 million dollars, which turned sour, which led him to tighten control of investments in the second fund.
“If we had been more selective and better invested, we would not have taken this big hit,” Son said.
Start-ups less sanctified in 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 chronic losing start-ups have severely dried up capital inflows for SoftBank. Still hoping to go public with chip designer Arm after a failed sale to Nvidia.
Looking for cash and share buybacks
To raise funds, SoftBank pulled out of the likes of Uber Technologies and door-to-door shopping platform Opendoor Technologies, with a total profit of $5.6 billion. SoftBank sold Uber at an average price of $41.47 per share, down from Friday’s closing price of $32.01.
The group has used more than two-thirds of the capital from a 1 trillion yen buyback program launched last November to back its shares, which have fallen by about half from highs reached in March last year.
SoftBank announced on Monday an additional share buyback program worth up to 400 billion yen, which will run until August next year. The shares closed 0.7% higher before the earnings release, in line with the benchmark Nikkei 225 index.
technology in a bad way
Witnessing how difficult the current economic climate is for technology, hedge fund Tiger Global, Son’s main competitor in the markets, had underestimated the impact of runaway inflation on the markets: it saw its fund’s capital fall by 50% in the first half of the year.
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