SoftBank warns over a loss of $16.7 billion on its tech-based Vision Fund deals as the fiscal year has ended during coronavirus pandemic.
"The difference in operating income is mainly attributable to the expected recording of investment loss of approximately [$16.7 billion] at SoftBank Vision Fund," Softbank says in a statement on Monday. This is mainly due to "a decrease in the fair value of investments" and the "deteriorating market environment."
SoftBank is a Japanese group of companies. Its founder Masayoshi Son steered the company in various studies on machine learning technologies, robotics, and advanced telecommunications. They thought these projects would gain hundreds of billions once executed.
For instance, Son spent millions and even billions of dollars on various startup companies. The bold and visionary investor Son and his team also invested in real estate, agriculture, consumer merchandises, and ride-hailing firms.
These include WeWork, OpenDoor, Compass, Brandless, Wag, DoorDash, Uber, and Grab. Unfortunately, all these companies struggled greatly due to the COVID-19 pandemic.
WeWork strived but failed to pull off a public offering. In the 3rd quarter of 2019, it lost $1.25 billion and continues to lose until it bailout from SoftBank. Another Softbank's flagship investment Uber was hit by investors and continues to trade well below its IPO price.
Meanwhile, OneWeb capitalized a network of satellites providing high-speed global telecommunications services while Zume robotic pizza delivery business also folded.
By the end of February, CNN Business has reported over 7,300 people lost their jobs since November. These are only from a dozen startup companies supported by Softbank.
Softbank will continue on investing
Nevertheless, all these failed gambles have not completely destroyed SoftBank. This is because its Alibaba stakes are earning as well as its core businesses in telecommunications and semiconductor holdings.
Son made his most famous investment in 2000 as it invested $20 million into Alibaba, a fledgling Chinese e-commerce company. In 2014, it earned to $60 billion when the company went public. While SoftBank has since sold some shares, its 25.1% stake in Alibaba was still worth nearly $129 billion.
Twenty years ago, people were criticizing the internet companies. "I had confidence and vision in [them]," Son said in November. He added that we have the same confidence regarding artificial intelligence and the portfolio companies in the Vision Fund.
After the devastating crash in investments, SoftBank managers decided to change their strategies. Bernstein analyst Chris Lane has recommended outperforming instead of buying, although the value of Vision Fund startups declined, the cost is still cheap.
In last week's investor call, SoftBank chief financial officer Yoshimitsu Goto said that "the company would be very conservative with new investments" due to the current economic state.
However, Son's drive to continuously support the Vision Fund during the pandemic worries some analysts.
Jefferies' Atul Goyal said last week that the Vision Fund does not really add any value to SoftBank. He adds that if Son "remains committed to raising funds for Vision Fund," the risk of destruction persists.
