SoftBank has inadvertently become a victim of WeWork’s predicament. In what it said to be its first loss in 14 years, the Japanese conglomerate suffered a surprising loss that got the CEO, Masayoshi Son, to a humble mood.
On Wednesday, SoftBank posted figures that indicated loss of $4.7 billion out of the $6 billion it invested in WeWork, and its Vision fund lost $3 billion out of the $4 billion it put into the troubled giant.
So the week offered SoftBank news of losses, $6.4 billion in all, denting its Vision Fund which now looks like a drag on its parent company because of poorly performing investments in WeWork, Uber and Slack. The Vision Fund lost nearly $9 billion in the quarter.
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“SoftBank Group Corp. is a Japan-based company principally engaged in the communication and Internet related business. The Company operates in six business segments. Softbank segment is involved in the sale of mobile terminals, the provision of mobile communication services and fixed communication services in Japan. The Segment also sells mobile terminal accessories, PC software and peripherals. Sprint segment is involved in the provision of mobile communication services and others in the US. Yahoo segment conducts advertising business on the Internet, e-commerce business and membership service business. ARM segment is involved in the design of IP and related technologies for microprocessors, and the sale of software tools. Softbank Vision Fund and Delta Fund segment conducts investment activities in the technology area. Bright Star segment conducts distribution of mobile terminals overseas. The Company is also involved in Fortress and Fukuoka Softbank Hawks related business.”
Though the loss broke a 14 years old record and opened the way for other possibilities, Son said it is part of the process, it’s not all about winning. “We can’t win every time, but our return is twice the average industry return,” he said.
Son admitted a poor investment strategy as a reason for the huge loss. Throwing huge sums around for startups was a risk that its price comes in billions.
SoftBank is trying to restore confidence in its big bets, after its backing of WeWork has drawn months of scrutiny. That means shoring up the corporate governance at some of the companies it backs and restrictions on dual-class shares, moves designed to restrict the nearly free reign enjoyed by some founders—like WeWork founder Adam Neumann, who departed his company with a $1.7 billion payout. (Fortune newsletter)
WeWork’s ordeal brought questions about Son’s commitment to unconventional tech founders which have necessitated it to spend extra cash to keep them in business.
A month ago, SoftBank paid $10 billion bailout fund to keep WeWork in existence, it includes $5 billion in new financing, a tender offer of up to $3 billion for existing WeWork shareholders and an acceleration of an earlier promise of $1.5 billion in funding. It’s a huge bailout that investors considered avoidable if SoftBank has done its homework before venturing into WeWork.
Questionable corporate governance practices are believed to be responsible for the troubles of WeWork.
Initially, Son appeared defiant and said he was not going to change anything or do things differently due to the recent losses. But in a sudden change of tone, he acknowledged in a news conference that such corporate challenges exist, and he regrets taking some steps.
“Various negative media reports about WeWork were true in some sense,” he said.
“The perception is that Softbank is being dragged down into the quagmire of Wework. I am looking back with true regret about the mistaken investment moves that I have made.”
Although SoftBank has been mainly at the receiving end of these poor decisions, Son said that investors are still reaping profits from their total investments and the Vision Fund’s value for shareholders has not fallen despite the latest losses because of gains from other stock holdings of SoftBank.
SoftBank has series of investments cuts across array of companies like Alibaba, Uber, Didi and Grab, Yahoo, Internet of Things (IoT), British based company Arm. So SoftBank has relied on its investment in these companies to keep its shareholders away from losses incurred in WeWork.
Although some of its investment companies like Uber and Slack have been suffering its own losses recently, SoftBank said it’s not that bad. Son also said that though Uber is losing money, SoftBank’s investment with the ridesharing company has kept it from becoming worse.
One of the concerns raised by the media is that SoftBank is more a real estate company than it is a tech company, and demanded to know why Wework is viewed as technology investment. Son said it is due to the internet technology used by the company, which offers office spaces to startups.
Though it all seems gloomy, Son said “it’s not a sinking ship.” It’s a common thing that happens with new companies, even those considered successes. “But there is no storm, and things are under control,” he assured.
SoftBank is counting on the good performances of its other various investments to keep the sinking ones afloat, a method that appears so practical as long as the majority of the investments stay on top of their game.