Telecommunications and internet group SoftBank plans to cut staff at its Vision Funds, which suffered a ¥2.92 trillion ($21.7bn) paper loss in the three months ending June 2022 as the stagnant stock market continues for tech companies.
“For SoftBank Vision Fund, we know we have to reduce operational costs substantially,” said SoftBank CEO Masayoshi Son (pictured) today. “Our vision remains the same, our beliefs remain the same. But we know we have to reduce operational costs, including headcount. For new investments, we have to be more selective.”
Although not as large as the $27.4bn loss recorded by the Vision Funds the previous quarter, the result compounds the damage.
The headline figures included a $2.17bn loss from SoftBank’s investment in South Korea-based e-commerce marketplace Coupang, $1.75bn from Chinese artificial intelligence technology producer SenseTime and $1.63bn on US-based food delivery service DoorDash, revealing problems that span multiple sectors and regions.
The cumulative gain from Japan-headquartered SoftBank’s investments through the two funds is now listed as only $11bn pre-tax, from a total of $154bn committed to the vehicles.
Should the portfolio continue to lose value, it will soon be operating at a loss. Vision Fund 2 (SVF2) is already doing so, maintaining a portfolio that has lost $9.9bn in value since it made its investments.
Son has responded by announcing he plans to cut numbers at SoftBank Investment Advisers (SBIA), which manages the funds, adding to an exodus of high-level executives from the division in the past 18 months.
Vision Fund figures trigger wider corporate loss
SoftBank’s Vision Fund I (SVF1) suffered a $9bn unrealised loss during the quarter in addition to a $226m loss realised from exits of portfolio companies. SVF2 made a $24.5m net profit due to the sale of its stake in real estate marketplace KE Holdings but recorded a $9.8bn decline in the valuation of its portfolio.
The figures were part of a wider loss for the company, which posted a $23.5bn net loss for the three-month period, the largest in its history and more severe even than the $16.4bn loss SoftBank recorded in the previous quarter. The results were attributed to a combination of falling share prices for SoftBank’s publicly listed companies and the weak yen.
The first Vision Fund closed at $98.6bn but over $65bn of that came from external backers – most prominently from Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala Investment Company.
However, $53.4bn of the capital for SV2 is SoftBank’s, with a Son-controlled company committing the other $2.6bn. The fact much of SV1’s capital came from outside may ease the pain somewhat, but those limited partners are still entitled to a 7% payout each year under the terms of their investment.
Share prices for tech companies more or less peaked in November 2021 and have since been on a steady decline. It’s a market contrast to the financial highs of the pandemic era, which resulted in SoftBank recording a $37bn paper profit in the first quarter of 2021.
Warehouse automation technology producer AutoStore and workspace provider WeWork were identified as the biggest publicly listed lossmakers for SV2. But as much of its portfolio is yet to reach the stock market, that largely reflects down rounds for companies such as Klarna and calculations based on weak financial performance and valuation falls for peers.
Cuts to continue amid staff migration
Son pledged in April to lower the investment rate at the Vision Funds and it resulted in a hefty cut in new deals that reduced its new investments from 41 in the preceding quarter to 13 in the last one.
He now intends to reduce staff numbers at SoftBank Investment Advisers (SBIA), which manages both funds, despite several prominent executives having left or had their responsibilities cut. The most recent, CEO Rajeev Misra, transitioned to vice-chairman last month to concentrate on raising his own $6bn fund.
Departueres this year include SoftBank Group International CEO Marcelo Claure, SBIA director Vishal Gupta, Shu Nyatta and Paulo Passoni – both managing partners at SoftBank’s Latin America Fund – and US head of SBIA Ronald Fisher in addition to Claure’s replacement, Michael Combes.
Munish Varma is rumoured to possibly follow Misra to his new fund, along with Akshay Naheta, head of the public markets-focused SB Investment team until April this year.
All of these elements point to a potentially bleak future for the Vision Funds, but the down market also threatens the status of SoftBank’s golden egg: The stake it holds in Chinese e-commerce giant Alibaba.
The corporate led a $20m round for Alibaba in 2000 and held a 32% stake as recently as 2016 when it began selling off shares in small batches, a practice that continued as the China-based company reached a peak market cap of roughly $840bn in late 2020.
SoftBank recently agreed deals to raise another $22bn by selling about a third of its existing stake through prepaid forward contracts, which means it has now divested more than half its Alibaba shares. However, Alibaba’s share price has more than halved in value over the past year, which brings forth questions as to how viable an option it will be in the medium term.
The one element of good news in the report is that SoftBank claims 97% of SV1 companies and 95% of its SV2 portfolio have a year or more runway in terms of cash in reserve, which would ease the pressure to raise money at downward valuations and avoid some of the costly bankruptcies it suffered from the likes of OneWeb and Brandless in early 2020.
Photos courtesy of SoftBank Group.
