SoftBank Loses $26 Billion on Tech Investments Amid Selloff

TOKYO— SoftBank Group Corp.

9984 -8.03%

on Thursday reported a whopping $26.2 billion loss to its large portfolio of technology companies for the first three months of the year, as the company posted a record annual loss for the second time in three years.

CEO Masayoshi Son said: “The world is in a chaotic situation. “In this chaotic world, the approach we at SoftBank should take is defensive.”

The tough results at the Tokyo-based group come as investors globally are facing a sharp drop in tech stocks, especially young, fast-rising companies. high growth, which has been an attractive investment for investors until recently.

Rising interest rates and other global concerns have sent investors fleeing loss-making companies with sky-high valuations, inflicting pain far beyond SoftBank. The popular ARK Innovation exchange-traded fund, run by Cathie Wood, is down about 60% this year, while many hedge funds lose month after month.

“If you own growth stocks this year, like we did,” Altimeter Capital founder Brad Gerstner tweeted Thursday, “you’ve got a tear in your face.” The tech-focused hedge fund has been a major investor in pre-IPO startups in recent years, including Uber Technologies Inc.

and software company Snowflake Inc.

Mr. Son opened a video pitch to investors by defending SoftBank’s financial position, saying that the company’s debt levels were manageable, the company’s cash flow was sufficient to cover its expenses. upcoming bond maturities and still profit in his huge tech fund. The company has increased its cash holdings through borrowing and selling shares, he said, to address concerns from investors about the company’s debt burden.

SoftBank reported an overall loss of $13.2 billion for the fiscal year ended March 31, including gains from divisions besides its tech fund, marking its biggest loss since to date, topping the previous record set two years ago. In a presentation on business results, Mr. Son also cited pressure from China’s crackdown on private businesses and rising interest rates.

Notably, the company has invested in many startups in the $100 billion Vision Fund, the world’s largest private equity fund raised five years ago with the aim of incubating a new world. new generation of tech giants.

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Among the worst bets is Chinese ride-hailing company Didi Global Inc.,

already facing regulatory pressure in Beijing. By the end of the most recent quarter, the Vision Fund had lost $9.7 billion of its $12.1 billion invested in Didi, the company said.

More pain to come: SoftBank said its stake in publicly listed Vision Fund companies has fallen by more than $13 billion since its fiscal year ended March 31.

Those are the companies that were once a huge hit for SoftBank. DoorDash Inc.

and Korean electronics retailer Coupang Inc.,

the two largest publicly traded stocks in the Vision Fund, both of which are down more than 40% in the past six weeks.

In total, SoftBank said the Vision Fund made just $3.1 billion of the $45.6 billion it invested in publicly listed companies as of Wednesday’s stock market close, a level Profits are low after 5 years where Nasdaq has nearly doubled.

The difficult year marked the second time in half a decade that Mr. Son had to go on the defensive, when he apologized to investors in 2019 following a disastrous investment in office company WeWork. Inc.

and other heavy loss companies.

“We’ll be much more careful when investing new money,” he said in a video recorded on SoftBank’s website on Thursday, echoing his remarks nearly three years ago.

Mr. Son delivered the results to investors with a presentation made in his simple – and somewhat sensational – style. A slide was placed on a dark background with smoke rising that read “The World in Chaos”.

He spent much of his presentation trying to reassure shareholders concerned about SoftBank’s debt levels, telling them he was closely managing the bank’s debt and cash.

In recent months, the company has borrowed nearly $6 billion in startup investments into its Vision Fund 2 division — an unusual move for a venture fund given the high risks involved. – and raise more money through financial instruments tied to its nearly 25% stake in Chinese e-commerce giant Alibaba Group Holding.

Shares of SoftBank fell 8% on Thursday in Tokyo trading, which ended before the announcement of the results. Thursday’s close was 4,491 yen, half less than a year ago.

Another headache for Mr. Son is opening an arm called SB Northstar set up in 2020 to invest in publicly traded big tech stocks. SoftBank on Thursday said Northstar has lost a total of nearly $6 billion since its inception, and Son said the fund has almost ceased operations.

The CEO has contributed a portion of Northstar’s capital and will personally reach more than $2 billion, SoftBank said.

SoftBank’s fate is no longer closely linked to that of Alibaba, which has funded other investments.

As recently as September 2020, SoftBank’s stake in Alibaba accounted for more than half of the bank’s total assets. As of March 31, SoftBank’s nearly one-quarter stake in Alibaba represented just 22% of the bank’s net worth. That makes it harder for SoftBank to borrow than that stock.

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

SoftBank said in February that it planned to offer Arm shares to the public in March 2023 following an agreement to sell the unit to Nvidia. Corp.

disintegrate. Mr. Son said the offering could be delayed by three to six months if the market situation worsens.

Mr. Son said: “We have to cover our umbrellas when it rains. “We need to think flexibly, depending on the situation. But it is time to strengthen our defense now.”

Write letter for Megumi Fujikawa at megumi.fujikawa@wsj.com and Eliot Brown at eliot.brown@wsj.com

Edit & Amplify
SoftBank Group on Thursday reported a $26.2 billion loss in its investment portfolio in technology companies for the first three months of the year. An earlier version of this article incorrectly referred to the number as an annual loss, and the company reported the results on Tuesday. (Fixed on May 12th.)

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https://www.wsj.com/articles/softbank-reports-13-billion-annual-loss-hit-by-tech-share-slump-11652339726?mod=pls_whats_news_us_business_f SoftBank Loses $26 Billion on Tech Investments Amid Selloff

Edmund DeMarche

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