“The world is in great confusion” Masayoshi Son (Softbank) makes his mea culpa

“The world is in great confusion” : This sentence, said at a press conference this afternoon by Masayoshi Son, the CEO of Japanese giant Softbank, looked like an argument to justify the -catastrophic- situation of the company he runs, but it also sounded like an admission of the astonishment

In fact, given the fall in the value of his portfolio in the stock market, which caused a record loss of $26.2 billion in May (for Q1 2022), the CEO decided to take drastic remedial measures, starting with downsizing in the Vision Fund investment division.

The explanation for rising interest rates and political instability

Commenting on the company’s results, Softbank’s CEO explained that while SoftBank’s first quarter of 2022/23 was marked by significant investment losses, mainly related to its funds Vision Fund 1 and 2 (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, however, Masayoshi Son had radically scaled back its investment activity: The Vision Fund branch approved just $600 million in new investments in the first quarter, up from $20.6 billion in the same period last year.

That’s why the billionaire vowed today to go further: he limited the second fund (Vision Fund 2) to managing his current investment portfolio while he planned staff reductions at the Vision Fund and cost-cutting across the group.

“We must cut costs at all costs, there will be no sacred reasons,” Mr Son said.

Excessive prices, carelessness in the face of the bubble effect, misjudgments

On the verge of taking immediate action to remedy the situation, the billionaire began a mea culpa by enumerating the mistakes that led to this disastrous situation: he thus explained the Vision Fund 2, which took relatively modest stakes but in a multitude of companies he had invested at inflated prices.

“We were in a kind of valuation bubble,” he said.

In the end, the portfolio of 269 companies in the second fund, Vision Fund 2, which cost $48.2 billion to acquire, was worth just $37.2 billion at the end of June.

SoftBank has written down the value of the unlisted assets of its two Vision 1 and 2 funds by 1.14 trillion yen ($8.45 billion).

But there were already warnings when the CEO in particular suffered a series of high-profile setbacks after the first fund Vision Fund 1’s big bets on late-stage startups – like those of WeWork (office division) – into which Softbank more than 10 billion Dollar invested – which turned sour, leading them to tighten control over investments in the second fund.

“If we had been more selective and invested better, we would not have had to accept this great success,” said Son.

Start-ups smell less of sanctity in the markets

Publicly traded investments that fell during the quarter included warehouse robotics company AutoStore and artificial intelligence company SenseTime.

Declining IPO volumes coupled with growing market skepticism about chronically loss-making startups have severely dried up capital inflows for SoftBank. She still hopes to be able to bring the chip designer Arm to the stock exchange after the failure of a sale to Nvidia.

Look for cash and stock buybacks

To raise capital, SoftBank exited companies like Uber Technologies and door-to-door shopping platform Opendoor Technologies for combined gains of $5.6 billion. SoftBank sold Uber at an average price of $41.47 per share, compared to Friday’s close 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 prop up its shares, which are down about half from peaks reached in March last year.

SoftBank on Monday announced an additional share buyback program worth up to 400 billion yen that 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 bad patch

Witnessing the struggling current economic climate in the technology sector, 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 capital fall by 50% in the first half of the year.

(with Reuters)