Japanese tech investor SoftBank hit by huge quarterly loss

Andrew Cummings
November 8, 2019

Japanese technology investment firm SoftBank Group suffered its first quarterly loss in 14 years between July and September, dragged down by falling valuations of its biggest tech bets such as WeWork and Uber.

The failure of WeWork caused the most considerable portion of the damage, accounting for a net loss of about 497.7 billion yen ($4.6 billion).

SoftBank had reported operating profits of 706 billion yen ($6.5 billion) for the same period a year earlier.

Japanese technology company SoftBank Group Corp. tumbled into losses in the last quarter as its earnings were hammered by money-losing investments, including a bailout for office-space sharing startup WeWork. SoftBank said the fund's 88 investments were worth about $77.6 billion, a 9.8% gain in value relative to the cost at which it acquired the stakes.

Son also admitted to overlooking the controversial behavior of WeWork cofounder and former CEO Adam Neumann, who leased properties to his company, charged it almost $6 million for the "We" trademark, and raised $700 million by selling and borrowing against company stock.

SoftBank reported ¥537.9 billion of unrealized losses in a plethora of investments from Uber to WeWork.

The company announced it lost $8.9 billion during the quarter. "There was a problem with my own judgement, [and] that's something I have to reflect on", he said after revealing the quarterly results. Its billionaire CEO, Masayoshi Son, who was an early investor in Alibaba, had previously garnered a reputation for wise investments, but the WeWork fiasco has cast serious doubts over his strategy.

WeWork is considering surrendering a portion of a recently signed lease in Wan Chai, near Hong Kong's central business district, people familiar with the matter said.

The rescue of WeWork sets a bad precedent of "throwing good money after bad", Jefferies analyst Atul Goyal wrote.

SoftBank was forced last month to spend more than $10 billion to bail out the office-sharing startup after its IPO attempt flopped.

SoftBank's investing activities are propped up by other pillars of Son's empire including domestic telco SoftBank Corp., which on Tuesday reported a 9 percent rise in second-quarter operating profit, beating estimates, buoyed by its cash-cow mobile business.

Son also promised a turnaround at WeWork, stressing that it was "not a sinking ship".

But a string of recent failures has raised questions about his judgment. The remaining capital is now reserved for investments in existing portfolio companies (including investments in joint ventures with them), fixed distributions, and finance related expenses.

WeWork, which launched in 2010, has touted its model as revolutionising commercial real estate by offering shared, flexible workspace arrangements, with operations in 111 cities in 29 countries.

Various negative media reports about WeWork were "true in some sense", Son said.

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