Japanese conglomerate’s quarterly result is timely reminder of the perils of wishful thinking.
By guest author Jacky Wong from the Wall Street Journal.
Feb. 7, 2023
There was no presentation from SoftBank 9434 -0.03%decrease; red down pointing triangle‘s flamboyant boss Masayoshi Son at its earnings briefing Tuesday. There were also no quirky slides of flying unicorns or golden egg-laying geese, as in years past. But there was still plenty to give shareholders pause in the Japanese conglomerate’s latest results.
SoftBank reported a net loss of 783 billion yen, equivalent to about USD 5.9 billion, for the quarter ended in December. That was a sharp swing from the ¥3 trillion profit the company reported in the September quarter—a result that was supercharged by the sale of part of SoftBank’s stake in Chinese e-commerce giant Alibaba.
The investment losses now piling up at SoftBank’s Vision Fund division paint a more accurate picture of the company’s predicament. The funds, which account for more than 40 % of value of SoftBank’s assets, lost around USD 5.8 billion last quarter. That was an improvement from even worse drops earlier in 2022, but for last year, in aggregate, the funds still suffered around USD 63 billion of losses, wiping out all of previous gains. Since the launch of the first Vision Fund in 2017, the division has now lost USD 6.6 billion.
Those losses have also forced SoftBank to step back from its aggressive investment style. The Vision funds invested only around USD 300 million in each of the past two quarters. That compares with USD 15.6 billion in a single quarter in 2021.
SoftBank’s net asset value, which the company deems a more important indicator than its profits, fell 17 % in the quarter. The yen’s rebound in the latest quarter contributed to part of that drop, since most of the company’s assets are outside of Japan.
SoftBank’s plight is unsurprising as the tech industry as a whole is in the midst of a deep funding winter. Global venture-capital funding fell 3 5 % year over year in 2022, according to Crunchbase. It is also getting harder for startups to come to market: initial public offerings raised 61 % less globally in 2022 than in 2021, according to EY.
This year will likely be better for SoftBank as investors increasingly appear to believe the U.S. may avoid an ugly, Federal Reserve-induced recession. The Nasdaq Composite Index has gained 14 % this year so far. China’s reopening and the easing of its regulatory crackdown on its own tech companies will also help SoftBank’s investments in the country—especially Alibaba.
Nonetheless, SoftBank’s unicorns have still lost a lot of sparkle: many probably won’t see their shares regain the lofty heights they hit during the investment frenzy.
SoftBank’s investment strategy of showering money on unprofitable startups epitomized the go-go attitude of the last tech boom. Its big loss is a timely reminder of the downsides of that approach—something that investors should keep in mind as tech shares once again start marching higher on a wing and a prayer.