As SoftBank Vision Fund's size evaporated sharply, the company's net loss in the second quarter was 3.16 trillion yen, setting a record for a loss of 1.7 trillion yen in the previous quarter, setting the highest in the group's history.

Reporter of Meike: Wen Qiao Reporter of Meike: Lan Suying

SoftBank (TYO: 9984, stock price 5315 yen, market value 9.157 trillion yen) founder Masayoshi Son is changing.

Once upon a time, thanks to the high growth of technology stock and the high valuation of , he made a lot of money and reached the peak of his life. Now, because of the selling of tech stocks, he has tasted unspeakable bitterness.

Faced with huge losses, Masayoshi Son spent an hour in public self-criticism at the press conference that day, and even used Tokugawa Ieyasu to allude to the dilemma he faced. At the same time, he honestly said: "I feel ashamed of my greed for huge profits in the past."

The investment logic he once believed in seemed to be gradually collapsed. After he suffered from the bitter fruit of radical investment, SoftBank is constantly "cutting its flesh to survive".

In addition to this, Masayoshi Son may reconsider the possibility of privatizing SoftBank. Some analysts believe that changes in SoftBank's form, such as MBO ( management acquisition of ), may occur in the near future.

Image source: Photo by Wang Jiaqi, reporter of Meike (data photo)

Investment logic bankruptcy?

financial report data shows that SoftBank Vision Fund, which SoftBank relies on to become famous, suffered a net loss of 2.33 trillion yen in the second quarter, setting a record of 2.2 trillion yen in the previous quarter, in sharp contrast to the profit of 235.6 billion yen in the same period last year. SoftBank's losses in the quarter also mainly came from two SoftBank Vision Funds, accounting for nearly three-quarters of the group's total losses.

Investments with more losses include Alibaba (BABA, US$91.19, market value of US$241.484 billion), Coupang (CPNG, stock price of US$18.98, market value of US$33.451 billion), Wework (WE, stock price of US$4.65, market value of US$3.391 billion), etc. In addition, the valuation of listed companies has severely shrunk, and it is reported to the unlisted companies they invested in. SoftBank set aside 1.14 trillion yen of fair value losses for this.

Masayoshi Son attributed the main reason for the loss to the uncertain environment and the depreciation of the yen, indicating that "the world is in great chaos." However, under the huge losses of SoftBank, the investment logic it once believed was gradually collapsed.

20 years ago, before investing in Alibaba, Masayoshi Son achieved great success by investing in Yahoo. It is reported that in 2000, Yahoo's market value exceeded US$100 billion. With 33% of Yahoo's equity, Masayoshi Son's net worth even exceeded Bill Gates , becoming the world's richest man for three days. Later, Masayoshi Son's bold bets on Alibaba and the US telecom operator Sprinttml3 helped SoftBank accumulate a lot of wealth.

SoftBank, which has made a fortune in making money, has always been regarded as the biggest booster of the technology bubble. It is reported that SoftBank Vision Phase I and Phase II and SoftBank Latin America Fund have invested in a total of 473 companies around the world.

In early 2021, Masayoshi Son also told employees at SoftBank’s internal work conference, "The valuation of startups is still soaring, and your investment is not radical enough!"

It is undeniable that the high growth and high valuation of technology stocks can bring huge excess returns to SoftBank. For example, its record $39 billion profit in fiscal 2020 benefited from the sharp rise in technology stocks.

However, with the arrival of a tide of selling technology stocks, SoftBank, which once took advantage of the trend of technology shareholders, has also tasted bad results. Because technology stocks are also industries that are extremely sensitive to interest rates and performance, risk preferences may undergo tremendous changes at any time, and SoftBank's performance will inevitably "jump up and down" with the huge fluctuations in the capital market.

In fact, SoftBank's investment loss crisis has been reflected in last year's financial report. In the company's 2021 fiscal year financial report, SoftBank's net loss was about 1.7 trillion yen, while Vision Fund's loss reached 2.64 trillion yen, a record.

As SoftBank goes to the edge of the cliff, the logic of Son's radical investment may have collapsed.

"Cutting the flesh and blood back"

Under huge losses, SoftBank had to start "rescuing itself".

Even as one of the most successful investment cases in SoftBank's investment department, Alibaba , it has chosen to sell the prepaid forward contract . On August 10, SoftBank said that the board of directors agreed to settle up to 242 million Alibaba forward contracts, with total transaction income expected to reach 4.6 trillion yen and its shareholding ratio dropped to 14.6%.

The Financial Times report on August 3 showed that SoftBank has sold about one-third of its Alibaba shares through prepaid forward contracts this year, raising a total of US$22 billion.

According to documents filed by SoftBank to SEC on August 8, the company will sell a portion of its 9% stake in SoFi Technologies, an online personal finance company. SoftBank sold about 5.4 million shares of SoFi shares on August 5 at a weighted average price of $7.99, documents show. On the 8th, SoftBank sold another 6.7 million shares at an average price of US$8.17.

Between April and July this year, SoftBank also sold its shares in the company, including UBER (UBER, stock price of US$31.06, market value of US$61.496 billion), and received a total of US$5.6 billion in revenue.

It is also reported that in the latest quarter, SoftBank has written down 284 companies in its portfolio and increased its holdings by only 35 companies. Son said SoftBank is strictly restricting new investments. In addition, SoftBank has begun negotiations to sell its asset management company Fortress Investment Group, which it acquired in 2017, according to the Financial Times.

Masayoshi Son also said that he planned to implement comprehensive cost reduction measures on SoftBank and its Vision Fund, "it will have to include layoffs, and I have made up my mind about this." Is the next choice for

privatization?

According to the Financial Times, Masayoshi Son may reconsider taking SoftBank into privatization. A person close to SoftBank confirmed that Masayoshi Son has discussed the option of privatizing SoftBank several times over the past three years, but has refused to implement the idea, partly due to pressure from the company's largest Japanese bank lender, Ruisui bank .

SMBC Nikko Analyst Satoru Kikuchi and some analysts believe that Masayoshi Son's strategy has changed significantly, and management now seems to prioritize defense balance sheets rather than venturing out venture capital as it used to be. “We think changes in the form of the company, such as MBO, may appear in the near future,” Kikuchi said.

It is reported that MBO generally refers to the acquisition behavior of the management within the company. Specifically, it refers to the senior management of the relevant company's use of high debts to raise funds, thereby buying out the equity of the relevant company and turning the company into its private ownership, so as to achieve the purpose of management controlling and restructuring the company.

However, some people have different opinions on this. Mitsushige Akino, chief investment officer of Ichiyoshi Asset Management, said MBO negotiations were possible, but Masayoshi may eventually choose to get SoftBank to relist in the United States to achieve a higher valuation.

"From now on, the discussion around SoftBank's MBO may accelerate, but it may be considered the worst option. MBO is an increasingly difficult deal because SoftBank is already heavily in debt," said Pelham Smithers, a longtime independent analyst at SoftBank.

However, SoftBank declined to comment on whether delisting was an option for the company.

SoftBank shares fell 8% in Tuesday's trading after reporting huge losses in the second quarter. Investors are evaluating whether SoftBank may be forced to make additional valuation write-downs on the unlisted portion of Vision Fund’s portfolio if tech stocks do not rebound. SoftBank has written down the value of its two Vision funds by 1.14 trillion yen.

(Cover image source: Photo by Wang Jiaqi, reporter of Meike (data photo))

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