SoftBank’s record losses should prompt a vision check

SoftBank CEO Masayoshi Son says he is embarrassed and regretful after the company reported record losses. A little humility would help ferment SoftBank’s aggressive investment style and likely boost long-term returns. But the odds aren’t necessarily in investors’ favor: the next time markets bubble again, Son’s brash style may also resurface.

The Japanese technology investor reported on August 8 its biggest ever quarterly loss: $23.4 billion for the three months ending in June. Investment losses at its $100 billion Vision Fund and its predecessor totaled $22 billion in the quarter.

That’s nearly wiped out all of the tech mutual funds’ cumulative gains since the first Vision Fund launched in 2017. The Nasdaq Composite Index has doubled since mid-2017, even after the recent liquidation.

Investors can hope that these record losses will help focus minds and lead to a more disciplined investment strategy. Son says the Vision Fund division will substantially reduce operating costs and increase discipline for new investments. But if what has happened is prologue, Son’s aggressive investment style will return shortly after the current storm settles.

SoftBank invested heavily in technology companies last year as the pandemic boosted valuations, leading to significant losses this year. The dive comes just a couple of years after shared office company WeWork posted billions of dollars in losses in 2019. Vision Fund 2, which is primarily funded by SoftBank itself, has been particularly hard hit : As of June, the fund has lost $10 billion since its inception in 2019.

All this comes as the Vision Fund is taking on an increasingly important role for the company. The Vision Fund division now accounts for nearly half of SoftBank’s net worth. SoftBank’s Alibaba stake used to account for a larger share, but China’s crackdown on its consumer technology companies has devastated Alibaba’s stock. The stake is now about 21% of SoftBank’s net asset value, down from 59% nearly two years ago. That’s partly because shares of the Chinese e-commerce giant have fallen more than two-thirds since their peak in 2020, but SoftBank has also been monetizing the stake to raise cash.

SoftBank said on August 8 that it raised $10.5 billion in prepaid forward contracts using its Alibaba shares. The company got initial cash from the contract, which it will settle with Alibaba shares or cash later. It’s also looking to include chip designer Arm, though a slump in semiconductor stocks could affect valuations and timing.

Tech stocks have rallied in the past two months, which should help SoftBank this quarter. But it’s too early to tell if the tech funding winter, especially for unlisted companies, is over yet.

More importantly, it’s still too early to tell whether SoftBank’s investment style will actually change for the better. Contrition is very good. The real test will be how SoftBank manages its investors’ hard-earned dollars in the next upcycle.

Write to Jacky Wong at jacky.wong@wsj.com

This article was published by Dow Jones Newswires, a service of the Dow Jones Group



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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!