Huge loss of 3.16 trillion! Masayoshi Son publicly admits his mistake: ashamed of being greedy for huge profits
Author: Wu Bin（https://twitter.com/uniswap12）
Edit丨Hejia
Source丨Visual China
“I’m ashamed of my greed for huge profits in the past. We are too confident and too ambitious.” Facing continued investment failures, the 64-year-old Masayoshi Son reflected on his results at the earnings conference.
On August 8, SoftBank Group released its financial results for the first quarter (second quarter) of fiscal 2022, which ended on June 30. The net loss in the second quarter was 3.16 trillion yen ($23.4 billion), breaking the previous record of 1.7 trillion yen in the previous quarter and continuing to set a new record. In comparison, the income in the same period last year was 761.51 billion yen.
Under the haze of the financial report, on August 9, Eastern Time, SoftBank closed down 6.68% to $19.41. Dragged down by continued huge losses, SoftBank’s stock price has fallen more than 60% from its high of $50 in February last year.
The main source of SoftBank’s huge losses was the unrealized investment gains and losses of the two Vision Funds, which reported a total of 2.9 trillion yen in investment losses in the second quarter. For a long time, the SoftBank Vision Fund has focused on investing in the technology field, and once took advantage of the wind of technology shareholders. However, as the Federal Reserve vigorously raised interest rates to curb inflation, technology stocks that are more sensitive to interest rates have been hit hard, and SoftBank has been mired in huge losses under the headwind.
In addition, SoftBank’s foreign exchange losses in the second quarter were as high as 820 billion yen as a weaker yen pushed up the value of dollar-denominated debt.
In order to make up for the losses, Son said that he plans to implement comprehensive cost-cutting measures for SoftBank and the Vision Fund.
Sun Lijian, director of the Financial Research Center of Fudan University, analyzed the 21st Century Business Herald reporter that SoftBank’s performance decline was actually affected by a series of external shocks. The world is currently facing three major shocks, betting on innovative (growth) companies. Investors were hit even harder by its results. There are three main reasons: First, the cost of capital has risen sharply. The Fed’s interest rate hike was in response to high inflation in the United States, but it changed the flow of global financial capital, resulting in a sharp appreciation of the US dollar, and the cost and opportunity cost of financing in US dollars became higher and higher. Second, the Fed’s rate hikes have caused investors to change their portfolio structure. Cash is king, prefer to hold bonds while selling growth stocks. The stock price of innovative companies has fallen seriously and it is impossible to exit. Third, issues such as Sino-US relations have affected the performance of Chinese stocks, and have also had a great impact on Sun Zhengyi’s investment portfolio.
Regarding the future direction of SoftBank, Sun Changzhong, a researcher at the Global Private Equity Research Institute of Tsinghua University, told the 21st Century Business Herald reporter that with the continuous growth of the technology field in the future, Sun Zhengyi is still “optimistic” about SoftBank’s future. As the driving force and leader of growth, the technology sector as a whole is of course still promising. As for SoftBank, it depends on the specific situation of specific companies and specific assets in its investment portfolio, and whether it can learn lessons in the future and its investment. and whether the concepts and capabilities of asset management can adapt to the economic environment and market changes.
After a huge loss of more than $20 billion in the second quarter, how far is SoftBank from spring?
Sun Zhengyi “admitted wrong” after continuous huge losses
In fact, in May of this year, SoftBank announced the worst annual loss in its 40-year history. In the 2021 fiscal year ending in March this year, SoftBank Group lost 1.7 trillion yen and the Vision Fund lost 2.64 trillion. The yen, both hit a record.
It should be noted that Masayoshi Son has publicly promised many times before that he will change his aggressive investment style, but he still chose to bet heavily on start-up technology companies at the peak of the market last year. SoftBank-owned funds invested about $38 billion in 183 companies last year, according to SoftBank data.
Against the backdrop of violent interest rate hikes by a number of central banks to fight inflation, global stock prices continued to decline in the second quarter of this year, and the valuations of listed companies such as SoftBank’s heavy-holding Uber and South Korean e-commerce giant Coupang plummeted. The Nasdaq 100 fell 22% in the second quarter, its biggest quarterly drop since the 2008 global financial crisis.
In addition, SoftBank holds large stakes in hundreds of unlisted tech start-ups. But valuations for such startups have fallen as investors shifted their focus from growth at all costs to profitability. Given the current sluggish valuations of tech companies, it’s getting harder and harder to turn an investment object’s listing into liquidity.
At present, Masayoshi Son has “admitted wrong”: he should not have acquired start-ups at the peak of the market, there are a lot of problems and mistakes in the investment portfolio, and Masayoshi Son has also promised to cut costs on a large scale to help SoftBank get back on track. “The market is sluggish, there is the Russian-Ukrainian conflict, there is the new crown epidemic, we can say many reasons, but these are all excuses. We must reflect: If we were more selective and more appropriate to invest, we would not have reached this step.”
Regarding the huge loss of SoftBank, Sun Changzhong believes that it can be seen from both internal and external aspects. From the perspective of the macroeconomic cycle, it is mainly catching up with the falling stage of the stock market, especially technology stocks. With the end of the economic recovery, economic and financial activities have returned to normal conditions before the epidemic to varying degrees, especially as the central bank aggressively raised interest rates to curb high inflation, the stock market fell sharply this year after rising last year, with repeated turbulence and interest rate-sensitive Technology stocks were particularly affected. SoftBank, which specializes in investing in technology startups, invested $38 billion in 183 companies last year, the largest annual investment in a single company in the history of venture capital. Although Sun Zhengyi said last year that he would be “conservative and restrained”, he still invested so much, and it was precisely at the highest point of valuation that he bought on the top of the mountain, so it is not surprising that he is suffering a huge loss now. Not only SoftBank, but other investors have suffered similarly. Buffett’s Berkshire Hathaway’s second-quarter 2022 earnings report showed its portfolio lost $53 billion in the market rout in the second quarter.
From the perspective of SoftBank itself, Sun Changzhong analyzed that the venture capital that SoftBank engages in is inherently risky, and most of them will inevitably suffer losses and failures. Encountered Waterloo.
At the time of weak performance, SoftBank has also been fluctuating. SoftBank Chief Operating Officer Marcelo Claure announced his departure in January this year. Other departures include SoftBank strategy chief Katsunori Sago, senior investment executive Akshay Naheta and Silicon Valley veteran Deep Nishar. Seven managing partners have left SoftBank since March last year.
Helpless in the face of adversity “broken arm to survive”
After successive record losses, SoftBank chose to “survive with broken arms”.
In the second quarter, SoftBank sold its Alibaba shares through forward contracts and raised $10.5 billion. So far this year, SoftBank has sold more than half of its Alibaba shares, raising a total of $22 billion. SoftBank said selling Alibaba shares early could help the company “raise capital up front” while “hedging against falling stock prices.” Sun Zhengyi has also repeatedly said that he is optimistic about Alibaba’s prospects, but in fact subjectively does not want to give up more Alibaba stocks.
In addition to realizing Ali stock, the former favorite Uber has been cleared. SoftBank sold its Uber stake sometime between April and July at an average price of $41.47 per share, according to an Aug. 8 filing with the U.S. Securities and Exchange Commission. SoftBank said the average cost per share was $34.50, so the sale of the Uber stake was profitable. In SoftBank’s original vision, Uber should have been the star stock in its portfolio. In fact, Uber stock has risen as much as 30% so far this month since Aug. 1.
In addition, SoftBank’s filing with the SEC on the 8th also showed that SoftBank will sell some or all of its 9% SoFi stake. SoftBank sold about 5.4 million SoFi shares on Aug. 5 at a weighted average price of $7.99. Another 6.7 million shares were sold on Aug. 8 at an average price of $8.17.
SoftBank said that between April and July, the sale of company stakes, including Uber, online real estate company Opendoor, health care company Guardant Health and stakes in Shell, realized a combined gain of $5.6 billion.
In addition to selling shares, Son has pledged to cut spending to get SoftBank back on track. Son stressed that “all” options to cut spending will be evaluated, with no exceptions. SoftBank will scrutinize senior and junior employees in front and back offices to an unprecedented degree.
For investors, there are also lessons to be learned from market turmoil. Sun Changzhong believes that investors need to grasp the fundamentals and macro cycles of economic and financial operations, grasp the investment rhythm according to their own risk tolerance, look ahead to market changes, strengthen risk management, and pay attention to prediction and prevention.
When is spring coming?
A legend in the venture capital world, Masayoshi Son has long been one of the most daring risk-takers in the tech industry. When he got his eye on Alibaba, the investment almost became the most successful venture capital deal in human history. one.
In 2016, Masayoshi Son repositioned SoftBank as a more pure-play investment holding company and launched the Vision Fund, which initially aimed to invest in an entire generation of future tech giants, raising the largest amount of money at the time. Two of the venture capital funds are about 30 times.
The establishment of the Vision Fund is also intended to replicate the successful case of investing in Ali. Masayoshi Son said in 2017 that this will make SoftBank a “goose that will lay golden eggs.”
But in the face of continued turmoil in the market and headwinds engulfing technology stocks, SoftBank, which has been making huge losses, is now facing an unprecedented test. After SoftBank announced a huge loss in May this year, Masayoshi Son said “SoftBank promised to take defensive measures.”
It should be noted that innovative companies have also encountered great difficulties in acquiring human capital, which makes Son’s investment goals unattainable. Sun Lijian told reporters that, first of all, the choice of human capital due to deglobalization is affected by political factors, which affects the flow of talents, and causes the high cost of human capital, which makes the performance of innovative enterprises impossible. In addition, the high salaries of technical talents of innovative companies are often locked in, and innovative projects themselves are high-risk. If the project performance cannot realize the high human capital (the consequences of inflation and the deterioration of the geopolitical environment), Then there will be a vicious circle for such innovative companies, talents will change jobs, and innovative companies will not have human capital as their core competitiveness, which makes it impossible for Sun Zhengyi to successfully achieve the goal of investment style.
Sun Lijian analyzed to reporters that Sun Zhengyi’s investment performance is not as good as the sky. A series of unexpected external shocks have affected SoftBank’s performance, and this is also a common phenomenon in the current market downturn, not only SoftBank. One is the loser. Generally speaking, investing in growth stocks is more valuable than value stocks in an environment of long-term troughs, and Masayoshi Son uses his past success to seize this opportunity.
In May of this year, Sun Zhengyi reiterated his belief in the “information revolution” after SoftBank’s huge loss: even if there were shocks such as the Internet bubble and the subprime mortgage crisis, the market value of technology growth stocks fell off a cliff in a short period of time. But from a long-term perspective, these market values will not only rise back, but also start the next round of breakthrough surges, and the time for SoftBank to return to “offensive mode” will come again in the next year or two.
In Sun Lijian’s view, times have changed. Unlike the past era of globalization, the laws of economic development allow more investors like Masayoshi Son to stand out. In any case, Masayoshi Son’s original investment philosophy and layout are still admirable, because their embrace of innovative investment behavior is the key to driving the world economy out of the long-cycle trough.
Tech headwinds have put SoftBank in winter mode, and Son is waiting for the cycle to reverse. When will SoftBank usher in spring? Investors are waiting to see.
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