Huge losses from SoftBank’s flagship Vision Funds will force the company to begin ‘dramatic’ cost cuts after plunging tech valuations and a weak yen drove Masayoshi Son’s beleaguered conglomerate to a record 3-month net loss, 1 billion yen ($23 billion).
At a press conference which Son Describing himself as “depressing”, he admitted that his reputedly aggressive global investment strategy should have been more selective, adding: “I am ashamed of myself for having been so elated by the big profits in the past”.
Son said on Monday that Soft Bank would now undergo a “spectacular” group-wide cost-cutting exercise, after a 7 billion yen investment gain in the two Vision Funds was almost completely reversed in the past six months.
In addition to being hit by the global tech rout in the April-June quarter, SoftBank suffered an 820 billion yen foreign exchange loss caused by the sharp fall in the yen against the US dollar, which fell to its lowest level in 24 years in July. This loss reflects the fact that about half of SoftBank’s total borrowings are denominated in dollars.
SoftBank’s Vision Funds posted a combined loss of 2.3 billion yen from April to June, following a then-record loss of 2.2 billion yen in the previous quarter. “If we had been a bit more selective and invested properly, it wouldn’t have hurt so much,” Son said.
In keeping with a tradition of eccentric presentations, Son explained the current state of his business with reference to a portrait of Ieyasu Tokugawa, the 17th-century shogun and national unifier who suffered huge losses in a battle so as not to losing face with his enemies. .
“I want to reflect on this and remember it as a warning,” Son said.
In another critical admission, Son openly questioned the unicorn hunting investment strategy of the $100 billion Vision Fund, a pool of money with which Son had wanted to lay the groundwork for a 300-year plan. “If we pursue our vision unilaterally, we risk annihilation. This must be avoided at all costs,” he said.
SoftBank attributed its woes to “increasing challenges” in the macroeconomic environment, inflation, central bank policy responses and geopolitical tensions. The huge losses follow Son’s promise in May that he would play “defense” in the face of deteriorating conditions.
The company described the recent rout as a “market correction of historic proportions.” But in his presentation, Son acknowledged that the listed portion of the Vision Fund’s portfolios had significantly underperformed.
The hardest-hit Vision Fund portfolio companies included former star artists such as e-commerce company Coupang, artificial intelligence group SenseTime and delivery service DoorDash.
“For private portfolio companies, fair value declined across a wide range of investments, reflecting writedowns from those that have recently made rounds and/or weaker performance, as well as lower share prices. in market-comparable companies,” SoftBank’s income statement said.
In a warning that could signal further pain, Son noted that while the Vision Fund’s losses reflected writedowns in the notional value of unlisted companies in the portfolio, those companies were vulnerable to macroeconomic conditions. “Winter for unlisted companies can be longer than winter for listed companies,” he said.
Son added that prepaid futures using Alibaba shareswith which the group raised 10.5 billion dollars in the last quarter, assured the group of a “good level of cash”.
When asked if it was still possible to use Alibaba shares for fundraising, Son said he was “looking into things” in light of the stock price and the situation. Financial from SoftBank, without giving further details.
Son declined to comment on UK-based chipmaker Arm and whether SoftBank can be persuaded by the UK government to consider listing in London as well as the US. He said things were going well at Arm, but added that “that’s the only thing I can say today.”