Son’s boom turns to bust

The collapse in high-flying tech stocks has resulted in enormous investment losses for SoftBank. Matthew Partridge reports

Japanese tech conglomerate SoftBank reported a loss of ¥1.71trn (£10.5bn) for the year ending in March, resulting from huge investment losses of about ¥3.5tn (£21.9bn) in its flagship Vision Fund. The markdowns in the fund were prompted by the rout in technology shares over the past few months, says Ben Martin in The Times. The regulatory clampdown on tech companies in China, where SoftBank has a large number of investments, played a major role: shares in transport app Didi have plummeted by almost 70% since the start of the year. However, SoftBank’s misfiring bets go beyond Beijing: investments in South Korean e-commerce firm Coupang and the Southeast Asian taxi, food and payments app Grab have suffered similar falls.

It’s worse than it looks

The bad results mean that almost half of the cumulative gains of the Vision Fund since its inception in 2017 have now “evaporated”, says Jacky Wong in The Wall Street Journal. The true damage is even higher, since the 33% drop in the value of Chinese tech giant Alibaba – which is SoftBank’s single biggest investment – doesn’t show up in the income statement due to accounting treatment. Mercurial founder and CEO Masayoshi Son (pictured) has promised to boost SoftBank’s fortunes by selling assets, but he may find that difficult, given that the shift in investors’ sentiment – from “relentless growth at any cost” to profitability – is pushing the valuations of early-stage private companies down.

The results were indeed “disastrous” with “things only likely to get worse” in the short run, says Gearoid Reidy on Bloomberg. Still, Son has a record of confounding his critics, both in the aftermath of the dotcom bust (when SoftBank’s shares dropped 99%) and also after the initial Covid-19 panic. While there have been many high-profile failures in recent years, there have also been some notable successes. A $2.2bn investment in Coupang “is still $6bn in the black even after its recent plunge”. Crucially, SoftBank still has more than enough cash on hand to pay creditors and access to cheap funding in Japan.

Buybacks or break-up

Still, SoftBank managed to complete a record number of public listings and divestments of its portfolio companies last year, adds Lex in the Financial Times. This means that it has up to $50bn in capital that it can invest. It seems logical for Son to put this cash to good use by buying up SoftBank’s own shares. That could help narrow the discount that sees the firm valued at less than half its net asset value of $150bn. But Son tried that last year and it failed to stop the share price falling by one-third in the past six months, says Liam Proud on Breakingviews. Another option would be to sell the listed stakes in order to make the group “a more focused bet” on private technology stocks. “But that would be no fun for Son, who would lose the assets that he uses as a kind of piggy bank for his investments in younger start-ups.”