Pengpai News Intern Reporter Qi Yeyun
At the beginning of SoftBank Group’s financial report conference, Founder and CEO OSun Masayoshi exhibited a picture of a frown that has nothing to do with the theme. This is a self-portrait of Tokugawa Ieyasu . After underestimating the enemy and eating the only defeat in his life ( Three-party battle ), he ordered the painter to record his appearance of fleeing in embarrassment and use it to warn himself.
Picture: SoftBank Group official website
65-year-old Masayoshi Son is stepping into such a darkest moment step by step. SoftBank Group is experiencing its largest loss since its establishment for 40 years. He said: "I need to reflect on the net loss of about 5 trillion yen in the past six months and remember it as a warning."
htmlOn August 8, SoftBank Group released its first quarter financial report for the 2022 fiscal year (Note: April-June). According to the financial report, SoftBank's net sales in the first quarter were 1.572 trillion yen (approximately US$11.625 billion), a year-on-year increase of 6.3%; but SoftBank Group's single-quarter losses once again set a new record, with a net loss attributable to shareholders of 3.1627 trillion yen (approximately US$23.388 billion). What is even more tragic is that the net profit reached 761.509 billion yen in the same period last year.20 years ago, Masayoshi Son became famous for making a 6-minute decision to invest in Alibaba , and embarked on a road of high-profile Masayoshi Son (Note: Masayoshi Son, a romantic voice, Masayoshi Son). This bold adventurer, amid the major political and economic changes, has suffered a failure in investment due to a sharp drop in technology stocks in recent years, and has harvested a basket of rotten fruits on the books. He began to reflect on his past "too confident" and felt ashamed of greed for huge profits. The transformation of
surprised the outside world. When investing in Alibaba in 2000, Masayoshi Son was facing the same dilemma, but Masayoshi Son was still fearless at that time, which surprised everyone who knew his experiences. But this time, Masayoshi Son, who showed his frown like a person, had a very different mood.
He is no longer a radical. Some analysts even believe that after unprecedented losses, SoftBank's Vision team was purged, and the investment scale was greatly reduced. With the broken arm, Masayoshi Son is likely to restart SoftBank Group's privatization plan in order to get rid of various restrictions of listed companies.
capital feeds giant baby
SoftBank Group's business is multiple. It started out through distribution and is now not only an venture capital institution, , but also Japan's third largest telecom operator. The communications business has been split and listed. Initially, it relied on the strategy of exclusive sales of iPhone for many years and grew into a Japanese communications giant.
On September 19, 2014, iPhone 6 was officially released in Japan. Masayoshi Son praised the photography performance of iPhone 6 through social media, but the topic changed and said that he was in New York, USA. A few hours later, Alibaba will be available on Nasdaq .
Picture: Son social media
Sun’s investment career has been filled with many iconic major investments and mergers and acquisitions, such as investing in Yahoo, acquiring Vodafone (Vodafone ), and swallowing the third American operator Sprinttml3, etc., but Alibaba is the most successful investment that Son has ever expressed. In 2000, it decided to invest US$20 million in Alibaba in 6 minutes, and in 2004 it invested again 60 million. When Alibaba went public in 2014, Masayoshi Son received a 2,900-fold return.
This is indeed an unforgettable moment. Masayoshi Son completed half of his investment history with outstanding results. But in the second half, how did he bet another Alibaba?
turning point starts from the day Alibaba goes public. Masayoshi Son frequently took advantage of global technology companies and soon established a Vision Fund to leverage a larger territory.
When raising funds in the early stages of the establishment of the Vision Fund, the target was US$30 billion. Perhaps it was because he remembered the past when he missed 330% of the Amazon html halfway through the road. Masayoshi Son changed the scale of 30 billion US dollars to 100 billion US dollars. Rajeev Misra, CEO of SoftBank Vision Fund, was shocked that no fund in the world can reach such a large scale, but Masayoshi Son said: Life’s too short to think small. (Note: Life is short, if you want to do it, you can do it with a big vote.)
In just a few years, Vision Fund invested 370 projects in two phases.Among them, there are 94 projects in Phase I (SVF1) of the fund and 276 projects in Phase II (SVF2) (Note: including exit). Vision Fund targets unicorns or quasi- unicorn companies , including the Korean version of "Alibaba" Coupang, the American version of " Ele.me " DoorDash, the largest online ride-hailing company in the United States, the largest online ride-hailing company in Southeast Asia Grab, the largest e-commerce company in India Flipkart, and China's largest AI unicorn storm. And WeWork was once the next Alibaba in Masayoshi Son's mind.
However, because of its large size, Vision Fund invests in late-stage VC (latestage venture capital), and invests huge funds at an unprecedented scale towards mature unicorns. This kind of project later financing and intervention before IPO, and investment in funds that are far higher than the demand of enterprises, invisibly increase the valuation of the enterprise. This is especially true for more than
celebrity projects. During WeWork's peak period, SoftBank's post-investment valuation was about US$47 billion, while it was only US$8 billion when it went public last year. After SoftBank entered the market, its valuation soared to US$7.5 billion, with a market value of only US$3.66 billion at the end of 2019. Uber, Didi , and SenseTime are all the same.
Related media reports said that not only institutions in the market regard Vision Fund investment as a reverse indicator for corporate valuation that is twice the market, but even the saying that "Vision Fund is the biggest bubble in the primary market" has been circulated in the industry.
This style once made Silicon Valley feel scared. The media asked Masayoshi Son for this, saying that he did not want to cause concerns about the valuation bubble of startups and investment will continue.
IMasa-PO's failure
The opposite is not just about being overvalued . Son even gave the invested companies sufficient funds and waved his hand so that the companies do not have to rush to go public. The industry calls Masayoshi Son's practice of not pursuing withdrawal: "Masa-PO".
records the history of WeWork's failure in entrepreneurship. "Billion Dollar Loser" writes that Masayoshi Son himself has long dreamed of privatizing SoftBank and free himself from the various restrictions brought by listed companies. Masayoshi Son believes that "privatization" is a "gift". So, it purchased $1.3 billion worth of WeWork stock from shareholders in 2017 and suggested that WeWork postpone its IPO.
Masayoshi Son does not pay attention to profit margins, but how fast the company can grow. Foreign media have reported many reports recording the details of the conversation between entrepreneurs and Masayoshi Son. Sam Zaid, CEO of car sharing platform Getaround, remembers that Masayoshi Son once asked him: "How can we help you expand your company 100 times?" Masa-PO suspended the listing plan. Masayoshi Son hopes that the company will quickly expand its scale with sufficient financial support. Because he emphasized too many Alibaba's ten-fold expansion strategies in investment company , Masayoshi Son is even called Mr.Ten. The investment failure of
SVF1 caused SoftBank to suffer its first loss in 2019. Vision Fund's LP (Limited Partner) has also had a lot of opinions on Masayoshi Son's style. Even if SVF2 is slowing down, sell it with caution. However, in the economic downturn cycle, bad luck comes one after another. As of June 30, Vision Fund held 277 of the 469 companies (including Phase I, Phase II and other funds), accounting for nearly 60%.
As of June 39 this year, the proportion of losses and profits among Vision Fund invested companies Source: SoftBank
For example, the former star project Coupang lost US$2.37 billion, the SenseTime (0020.HK) lost US$1.75 billion, and the loss recorded by DoorDash was US$1.6 billion. As shares of Norwegian warehousing robot companies AutoStore and WeWork fell, SVF2's valuation losses (net) totaled US$3.839 billion. For non-public companies, unrealized valuation losses (net) recorded by SVF1 totaled $2.19 billion. SVF2 even reached US$6.553 billion.
Although SoftBank said that LTV (loan-to-value, the ratio between debt and asset value) has been controlled within 25%, at a low level. But the actual number may be much greater than that. " Wall Street Journal " quoted Bloomberg industry research. SoftBank's debt and valuation of shares have recently exceeded 36%, reaching the debt level that SoftBank believes will only reach in an emergency.Masayoshi Son can only leverage larger funds by selling/mortgaging the equity.
Alibaba equity is SoftBank Group's only large liquid asset.
Picture: SoftBank
SoftBank Group has sold Alibaba shares many times when it faces huge demand for capital.
In 2016, in order to complete the wholly acquisition of British chip company ARM in the secondary market, SoftBank sold at least US$7.9 billion in Alibaba shares for the first time, and its shareholding ratio dropped to 28%. After SoftBank Group made its first loss in 2019, it sold Alibaba's equity to raise 1.25 trillion yen (approximately US$11.5 billion) and other stocks turned losses into profits in the 2020 fiscal quarter. In 2021, it was reported that Alibaba shares were used as collateral to seek a loan of US$10 billion. In 2022, SoftBank Group announced the early settlement of the forward contract contract , involving at most about 242 million shares of Alibaba American depositary shares , cashing out US$34.5 billion, and holdings will be 14.3%.
Most SoftBank Group completes equity sale through forward contracts. A forward contract is a derivative product. The two parties to the transaction agree to buy and sell a certain amount of certain financial assets at a certain price at a certain certain time in the future. This method can avoid exchange rate fluctuations, while meeting what Masayoshi Son expects, and complete the sale plan "quietly" without affecting Alibaba's stock price as much as possible. For example, the first share reduction in 2016 will be confirmed only after the last day of delivery after the expiration of three years.
This is also the reason why the cash out of $34.5 billion, but it has a small impact on Alibaba's stock price. Because the relevant counterparty has completed the sale in the market.
Privacy rumors are rumored to be on the hilarious
Only since April this year, SoftBank Group has still cleared its holdings of Uber, selling stocks of online real estate company Opendoor, healthcare company Guardant, Beike Real Estate Search , and online personal finance company SoFi Technologies. Meanwhile, SoftBank acquired Fortress for $3.3 billion in 2017; it is now seeking to sell it and book a huge loss. The label of "buy high sell low" has become an lingering shadow for SoftBank.
Due to the global impact of inflation and the sharp drop in technology stocks, the most successful Buffett companies Berkshire Hathaway and the "Tiger Global Management Fund" are all in this hot and cold. Hathaway released its 2022 interim financial report, showing that it lost US$38.295 billion in the first half of the year, the worst half-year performance in the past 20 years. Tiger Global Fund said that the overall loss in the first half of the year increased by 50% compared with the end of last year.
Compared with Masayoshi Son's "sincere introspection", Berkshire Hathaway advises investors to pay less attention to quarterly volatility in their equity investments.
SoftBank Group's situation is more complicated than Berkshire . Not only are the assets and liabilities and dissatisfaction with LPs, but starting last year, Vision Fund executives carried out a major purge, and many partners have left, and Masayoshi Son's closest comrade Misra also resigned from some positions. The policy has also been gradually tightened, and SoftBank Group has begun to cautiously launch new projects. Son said, "The 473 companies in hand also have a lot of golden eggs. What we need to do now is incubate."
Investment quota approved by the Vision Fund in the last five quarters Figure: SoftBank
SMBC Nikko Analyst Satoru Kikuchi and some analysts believe that SoftBank Group's strategy has undergone a big shift, and Son is obviously becoming conservative. "We believe that changes in the form of the company, such as MBO ( management acquisition of ), may occur in the near future," Satoru Kikuchi wrote in the report.
In addition to MBO, repurchasing stocks is also one of the paths to privatization. According to relevant Japanese regulations, when Masayoshi Son's shareholding ratio reaches 66%, other shareholders can be forced to sell their shares. When the Vision Fund suffered losses, Son always hoped that SoftBank could be privatized. At the shareholders' meeting in 2020, Masayoshi Son discussed a privatization plan with shareholders such as the US hedge fund Elliott, and the Abu Dhabi sovereign wealth fund Mubadala, but was rejected by shareholders. Finally, under the leadership of Elliott, SoftBank Group launched a stock repurchase plan to stabilize its stock price.
The huge capital demand, in addition to repaying debts, is used to repurchase stocks.
2020 SoftBank Group announced a 2.5 trillion yen repurchase plan. In November 2021, SoftBank Group announced a stock repurchase plan of 1 trillion yen within one year. After the release of the financial report on August 10, SoftBank Group once again announced a 400 billion share repurchase plan for the new year (August 9, 2022 to August 8, 2023), with a maximum repurchase of 6.3% of the shares.
SoftBank has previously expressed that by repurchasing stocks, gradually increasing Son's shareholding ratio and ultimately reaching privatization. But this road is still long.
Sun Masayoshi's office also hung a portrait of Sakamoto Ryuma . Ryuma Sakamoto was a reformist patriot in the Makuma period. He ended the shogunate peacefully, pointing out the direction for the Meiji Restoration era. In the hearts of the Japanese, Ryuma Sakamoto is a pioneer who is not bound by the past and always stays ahead of the times. The original intention of the
Vision Fund is to lay the foundation for the long-term development plan for 300 years. Since the risk of defeat is inevitable, then Masayoshi Son must be as important as Ryuma once said.
Editor in charge: Shen Guanzhe Photo editor: Hu Mengsai
Proofreading: Luan Meng
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