According to Bloomberg, billionaire Masayoshi Son may be about to set a new record – but this is not a record to celebrate. When he reports March quarter results on Thursday, Softbank’s Vision Fund investment arm could report even more losses in a quarter – unprecedented levels.
According to Kirk Bootry, an analyst at Redex Research, the world’s largest technology investment firm, the world’s largest technology investment firm is predicting a loss of about $18.6 billion alone in its portfolio of public investments in the quarter ending in March 31 – a larger than the record 18.3 billion USD in the second quarter of last year. This means the Vision Fund will see a loss of about $10 billion according to Bootry’s calculations.
These are a drastic change from a year ago when Son took to the stage in Tokyo and announced that Softbank made more money in a single quarter than any Japanese company in history. The company he founded 40 years ago had a net profit of 1.93 trillion yen ($17.7 billion at the time), eclipsing even the likes of Toyota and NTT.
“It’s not normal. Investors, the market is starting to get nervous. When it comes to size or potential for loss, the market seems to be building in a downtrend.”
Shares of Softbank continued to decline.
Softbank’s two Vision Funds have struggled as the value of technology companies tumbled amid rising global interest rates and China’s tightening grip on the tech industry. South Korea’s Coupang and China’s Didi are among the Vision Fund’s worst investments — each of which has seen its share prices drop by 40% and 50%, respectively, quarterly.
The Vision Fund’s biggest loss to date, 825.1 billion yen, came in the second quarter of the fiscal year when the stock market plunged. The fund will then return to profitability, earning 109 billion yen in the three months ending December 31.
The key point for the fourth quarter of the fiscal year will be how Softbank assesses the value of the vast number of private companies investing. The list also includes ByteDance, which operates India’s TikTok video platform, and Oyo Hotels.
“There are still a lot of unseen problems in this category, especially at Vision Fund 2 where many of the investments are smaller or still in the early stages,” Boodry wrote in a note. notice to investors. However, “Softbank is likely to experience significant losses in its individual portfolio as well”.
The sharp decline in the market is seriously affecting Softbank’s business model as Son repositioned to let Vision Fund invest in joint stock companies in 2016. A series of scandals and missteps from WeWork, Wirecard and Greensill Capital have led to a closer global following.
Now, fears are growing even more that the decline in the value of technology companies has severely damaged Son’s reputation and raised concerns about the stability of the business. The lack of transparency regarding how the assets of the funds operate added to the problem causing the market to rattle.
“Softbank’s overall business structure depends on a single assumption, and that is the relentless rise in stock prices,” especially in tech stocks, which are leading the current sell-off. This is the “fundamental vulnerability” that is being increasingly exposed by the bear market.
The Vision Fund now lost 32 of its 34 investments that went public last quarter, as calculated by Nomura Securities. These 32 companies include South Korea’s Coupang ($5.4 billion), Singapore’s Grab ($2.4 billion), Didi ($2.4 billion), Paytm ($1.3 billion), and DoorDash (US$1.3 billion). 1.1 billion USD).
Unknown losses in the public portfolio are currently between $37 billion and $18 billion in fiscal 2021, according to Boordry’s calculations. In total, the companies in the Vision Fund’s public portfolio have lost more than 50% of their value since their peak.
In short, Softbank has lost a lot of money on paper and the profit was only 1 year ago. Few analysts currently make predictions about Softbank’s future, at least publicly. Due to the company’s change to investing in joint stock companies, all issues must be tied to market value. However, Warren Buffett has long argued that quarterly profit and loss numbers for investment firms like Berkshire Hathaway are mostly meaningless.
However, Softbank’s latest quarterly results could severely damage Son’s reputation as he repositions himself to become the world’s most influential venture capitalist. .
Son built the Vision Fund on a selection of fledgling startups including a bet on Alibaba that became one of the most successful venture deals of all time. However, even this investment is facing problems as Alibaba is heavily affected by Beijing’s campaign to suppress the technology sector. Currently, Jack Ma’s empire has lost more than 70% of its value from its peak since October 2020.
The Nasdaq 100 index also fell 25% – the worst since 2008.
Tech-heavy funds have also taken a hit globally, including Chase Coleman’s Tiger Global Management, one of the most successful hedge funds of the past two decades.
Moringstar’s Dan Baker is also one of the least pessimistic about Softbank’s prospects. While the performance of technology funds that invest in the early stages of companies will continue to fluctuate, Softbank – of this size will have more opportunities to invest.
“This market isn’t for everyone. But once you’re willing to accept the volatility and look at the long-term prospects of companies, you can end up with the sweet treats.”