Huge losses at SoftBank’s flagship Vision Funds will force the company to begin “dramatic” cost-cutting after a sharp decline in tech valuations and a weak yen pushed Masayoshi Son’s embattled conglomerate to a record ¥3.1 trillion ($23 billion). quarterly net loss.
In a press conference that Son himself described as “depressing”, he admitted that his famously aggressive global investment strategy should have been more selective, adding: “I’m ashamed of myself for being so elated by big gains in the past.”
Son said on Monday that SoftBank will now undergo a “dramatic” cost-cutting exercise across the group after the ¥7 trillion investment profit in the two Vision funds almost completely reversed in the past six months.
He also said the Japanese group had begun talks to sell Fortress Investment Group, the asset manager it bought in 2017. “We are willing to listen to potential buyers with an open mind,” Son said.
In addition to being hit by the global tech crisis in the April-June quarter, SoftBank suffered an ¥820 billion foreign currency loss caused by the yen’s sharp decline against the U.S. dollar, which fell to a 24-year low in July. This loss reflects the fact that about half of SoftBank’s total loans are denominated in dollars.
SoftBank’s Vision Funds reported a combined loss of 2.3 trillion yen for the April-June period, following then-record losses of 2.2 trillion yen in the previous quarter. “If we were a little more selective and invested properly, it wouldn’t hurt as much,” Son said.
In keeping with the tradition of eccentric presentations, Son explained the current state of his company by referencing a portrait of Ieyasu Tokugawa, a 17th-century shogun and national unifier who suffered massive losses in battle to avoid losing face to his enemies.
“I want to think about it 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 Son wanted to use to lay the foundations for a 300-year plan. “If we pursue our vision unilaterally, we risk being destroyed. This should be avoided at all costs,” he said.
SoftBank attributed its woes to “deepening 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 worsening conditions.
The company described the recent crash 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.
Vision Fund portfolio companies hit hardest include previous stars such as e-commerce company Coupang, artificial intelligence group SenseTime and delivery service DoorDash.
“For private portfolio companies, fair value declined across a broad range of investments, reflecting reductions in those with recent funding rounds and/or underperformance, as well as declines in share prices in market peers,” the report said. SoftBank’s earnings.
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In a warning that could signal further pain, Son noted that while the Vision Fund’s losses reflect write-downs in the notional value of unlisted companies in the portfolio, those companies are vulnerable to macroeconomic conditions. “The winter for unlisted companies can be longer than the winter for listed companies,” he said.
Son added that prepaid forward contracts using Alibaba shares, with which the group raised $10.5 billion last quarter, provided the group with a “good level of cash position”.
Asked if there was still room to use Alibaba’s shares to raise funds, Son said he was “looking at the questions” in light of the share price and SoftBank’s own financial health, without elaborating.
Son declined to comment on the issue of UK-based chipmaker Arm and whether SoftBank could be persuaded by the British government to consider listing in London as well as in the US. He said things are going well at Arm, but added that “that’s all I can say today.”
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