SoftBank loses $26 billion on technology investments amid sell-off

Tokyo — SoftBank Group corp.

9984 -8.03%

On Thursday, it announced a massive $26.2 billion loss in its large portfolio of technology companies in the first three months of the year, as the company posted a record annual loss for the second time in three years.

“The world is in a chaotic situation,” CEO Masayoshi Son said, citing Covid-19 and the Russian invasion of Ukraine. “In this chaotic world, the approach we should take at SoftBank is defense.”

The Tokyo-based group’s rough results come as investors around the world grapple with a major slump in technology stocks, particularly young, high-growth companies that were a magnet investment for investors until recently.

Rising interest rates and other global concerns have sent investors fleeing unprofitable companies with high valuations, causing suffering beyond SoftBank. The popular exchange-traded fund ARK Innovation, managed by Cathy Wood, is down about 60% in the year to date, while many hedge funds are incurring losses month after month.

Altimeter Capital founder Brad Gerstner tweeted Thursday, “If you owned growth stocks this year, as we did, your face might rip.” The tech-focused hedge fund has been a major investor in startups before their IPO in recent years, including Uber Tech. company

The Snowflake Software Company company

Mr. Son opened a video presentation to investors by defending SoftBank’s financial position, saying the company’s debt levels are manageable, its cash holdings are enough to cover upcoming bond maturities, and it is still making gains in its giant tech fund. He said the company has boosted its cash holdings by borrowing and selling shares, in an effort to address investor concerns about the company’s heavy debt burden.

SoftBank reported a total loss of $13.2 billion for the fiscal year ended March 31, including gains in divisions alongside tech funds, posting the biggest loss ever for the full year, beating the previous record set two years ago. In a stark earnings presentation, Mr. Sun also noted the pressures of China’s crackdown on private companies and rising interest rates.

The company’s Stinging has been declining investments in several startups in its $100 billion Vision Fund, the world’s largest private equity fund raised five years ago with the intent of creating a generation of new tech giants.

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Among the biggest bad bets was China’s Didi Global for passenger services company ,

Which faced regulatory pressure in Beijing. By the end of the last quarter, the Vision Fund had lost $9.7 billion of the $12.1 billion it had invested in Didi, the company said.

There’s more pain ahead: SoftBank said its stakes in publicly listed Vision Fund companies have fallen by more than $13 billion since the fiscal year ended March 31.

Those companies that were once giant successes include SoftBank. DoorDash company

and Coupang, a South Korean electronic retailer company ,

The two largest publicly traded shares of Vision Fund, both have fallen more than 40% in the past six weeks.

Overall, SoftBank said its Vision fund has made just $3.1 billion of the $45.6 billion it has invested in its publicly listed companies as of the stock market close on Wednesday, a meager return after five years in which the Nasdaq has nearly doubled.

The difficult year was the second time in half a decade that Son was on the defensive, apologizing to investors in 2019 after a disastrous investment in WeWork office space. company

And other companies with heavy losses.

“We will be more careful when we invest new money,” he said in a video recorded on SoftBank on Thursday, echoing his comments nearly three years ago.

Mr. Son presented the results to investors with a slide presentation made in his simple – and somewhat interesting – style. One slide, set against a dark background with billowing smoke, says “The world is in chaos.”

He devoted much of the show to trying to reassure shareholders worried about SoftBank’s debt levels, telling them he manages its debt and money closely.

In recent months, the company has borrowed nearly $6 billion associated with startup investments in its Vision Fund 2 division — an unusual move for a venture capital fund given the high risk involved — and raised additional funds through financial instruments linked to its 25% stake. Almost in the Chinese e-commerce giant Alibaba Group Holding.

SoftBank shares fell 8% Thursday in Tokyo trading that ended before the results were announced. Thursday’s close of 4,491 yen was less than half the level from a year ago.

Another problem for Mr. Son is unwinding an arm called SB Northstar that he started in 2020 to invest in big publicly traded tech stocks. SoftBank said Thursday that Northstar has lost nearly $6 billion since its inception, and Son said the fund has mostly gone out of business.

SoftBank said the CEO contributed a portion of Northstar’s capital and will personally receive more than $2 billion.

SoftBank’s fate is no longer closely linked to Alibaba, which has been a source of funding for other investments.

As recently as September 2020, SoftBank’s stake in Alibaba accounted for more than half of its total asset value. As of March 31, SoftBank’s roughly one-quarter stake in Alibaba represented just 22% of its net asset value. This makes it difficult for SoftBank to borrow against that stake.

Mr. Son said he would focus on chip designer Arm, which is owned by SoftBank, as a way to make money without spending more money. He said he expects demand for chips to continue to grow. He also confirmed that Arm’s China operations are back to normal after a dispute with a former CEO who at one point left China operations without the company seal needed to do business.

SoftBank said in February that it plans to go public with Arm shares by March 2023 following a deal to sell the unit to Nvidia corp.

fell apart. Sun said the offer could be delayed by three to six months if market conditions worsen.

“We put an umbrella on when it rains,” Mr. Sun said. “We need to think flexibly, depending on the situation. But now is the time to strengthen our defense.”

write to Megumi Fujikawa at [email protected] and Elliot Brown at [email protected]

Corrections and amplifications
SoftBank Group Corp. Thursday reported a $26.2 billion loss in its portfolio of technology companies in the first three months of the year. An earlier version of this article incorrectly stated that the number represented an annual loss and that the company reported the results on Tuesday. (Corrected May 12).

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