SoftBank loses another $5.9 billion as son skips conference call

(Bloomberg) – The first earnings report from SoftBank Group Corp. without founder Masayoshi Son was similar to the one he has presided over in recent years: the Japanese conglomerate lost billions of dollars on failed startup bets.

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SoftBank posted a net loss of 783.4 billion yen ($5.9 billion) for the December quarter, far below analysts’ estimate of 205.9 billion yen for profit. The key contributor was the Vision Fund segment, which lost 660 billion yen on falling valuations for companies in its investment portfolio.

Son skipped the earnings call for the first time since records began, leaving his chief financial officer to take questions. Shares plunged as much as 6% in Tokyo trading, the biggest intraday drop in nearly three months.

SoftBank invested in startups in 2017 with the Vision Fund — a type of outsize venture capital — and deployed more than $144 billion in hundreds of companies over the next more than five years. But SoftBank fell into fiascos like WeWork Inc. and then into a sharp downturn in the tech market as investors pissed off money-losing startups. In the most recent quarter, writedowns at tightly held companies outweighed a modest recovery in SoftBank’s publicly traded investments, such as Didi Global Inc. and Grab Holdings Ltd.

During a press conference following the results, Chief Financial Officer Yoshimitsu Goto skipped the historical references Son often favored and went straight to numbers aimed at reassuring investors of SoftBank’s stability and prospects. He repeatedly said that SoftBank will remain in defensive mode while markets are challenging, although it has “enough cash” to go offensive going forward.

“The most important thing is to take a conservative approach when assessing the current environment,” he said, wearing a dark suit and bright blue tie. “I’m still working on making better presentations.”

Goto led with a barrage of numbers, noting that SoftBank’s loan-to-value ratio is still well below its 25% target and its net asset value is significantly higher than its stock price. Moving on to playful field questions, he repeated many of Son’s standard phrases, including that SoftBank aimed to be the “vision capitalist for the information revolution.”

Son’s decision to skip earnings calls drew skepticism from investors and analysts. The 65-year-old billionaire founded the company four decades ago and has made all the major decisions ever since, so his absence leaves a gap in SoftBank’s understanding of strategy.

Son has turned a once-stable, profitable telecoms company into the world’s largest startup investor because he believed he could leverage the success he’d seen with early bets like his backing Chinese e-commerce giant Alibaba Group Holding Ltd. had, could repeat. But its investment machine has now come to an almost complete standstill. Last quarter, SoftBank poured less than $350 million into just a handful of startups, down about 95% from the previous five-and-a-half-year average of $6 billion per quarter.

In an interview, Navneet Govil, one of Vision Fund’s senior executives, argued that SoftBank has many strong companies in its portfolio and should be able to capitalize when the environment recovers. He said there’s an estimated $37 billion fair value among mature startups that should be able to go public once markets reopen.

“There remains significant unpredictability in labor markets, the future monetary policy roadmap and corporate earnings,” said Govil, executive managing partner at SoftBank Global Advisers, following the earnings announcement. “Our stance remains defensive and we are focused on building resilience.”

Govil said Vision Fund 2 has about $6.5 billion available for new investments, and if he spends that, he could inject additional capital into the existing fund or even create a third Vision Fund, though none yet decisions have been made.

SoftBank deals hit record low, weakening startup funding

The Vision Fund unit has lost money for four straight quarters and has lagged far behind its peers. The cumulative performance of the two Vision Funds and the Latin American funds increased from a profit of $66 billion to a loss of $6.6 billion. South Korean e-commerce giant Coupang Inc. and Indonesia’s GoTo Group were among the publicly traded companies that lost ground last quarter.

“The quarter was disappointing as Vision Fund’s losses were higher than expected due to impairments in private assets and additional downside came from WeWork debt,” wrote Kirk Boodry, an analyst at Redex Research publishing on SmartKarma, in a note.

One of the keys to reviving investment activity at SoftBank lies in a successful IPO of Arm Ltd., chip design firm Son, which was acquired in 2016. The main reason Son withdrew from earnings calls was that he wanted to focus on that task, arguing that the British firm could end up pulling off the biggest chip company IPO of all time.

Arm reported solid growth for the most recent quarter. Revenue rose 28% year over year to $746 million, driven by an increase in adoption of Internet-of-Things gadgets and high licensing fees on smartphones. SoftBank now plans to list the company publicly by December.

SoftBank hasn’t announced a new stock buyback program, a strategy that has helped boost the stock price in the past. Goto said such buybacks are “constantly” discussed at the board.

“We think buybacks are likely in the event of major exits such as an ARM IPO or the sale of Alibaba shares,” said Satoru Kikuchi, an analyst at SMBC Nikko Securities.

Goto explained that Son is certainly better at explaining the company’s vision, but it is not necessary for a company to detail business strategies every quarter.

“I can’t say when that will be, but we’ll all be happy to have Son back as soon as possible,” he said. “But for now, please be patient with us.”

(updates with executive comments from fifth paragraph)

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