SoftBank Group Corp. on Wednesday reported its first quarterly operating loss in 14 years — ¥704.4 billion (about $6.5 billion) — after writing down the value of a string of marquee investments, including WeWork and Uber Technologies Inc.
The investment powerhouse also saw its group net profit halved for the six months to September, with net profit sinking 49.8 percent to ¥421.6 billion on an operating loss of ¥15.6 billion.
SoftBank swallowed a charge of ¥497.7 billion for WeWork, whose spectacular implosion turned the once high-flying shared-office startup into a Silicon Valley punchline.
The dismal figures call into question the billionaire founder Masayoshi Son’s deal-making approach just as he’s trying to raise an even larger successor to his $100 billion Vision Fund.
“Our financial results this time are totally shattered,” Son told a news conference in Tokyo after the figures were released. “I greatly regret my bad investment judgment.”
But he added that the huge losses would not alter the company’s pursuit of investment in small companies with high growth potential.
“We won’t change our vision and strategy,” Son said, calling the latest earnings “not a storm but just a ripple.”
The Vision Fund had been a driver of profit growth at SoftBank, contributing over $14 billion in mostly paper gains over the past two years. The shrinking valuation of Uber and WeWork, once among the brightest stars in the SoftBank constellation, also raises the prospect of more write-downs in the Vision Fund’s portfolio with its high exposure to businesses that prioritize growth over profitability.
The investment giant will lend a hand in restoring WeWork by sending Chief Operating Officer Marcelo Claure as executive chairman.
“I regret I overvalued WeWork while overlooking governance concerns. But its products are really good,” Son said.
“Son’s handling of WeWork raises some fundamental questions about his investment strategy that need to be addressed,” Jefferies Group senior analyst Atul Goyal said ahead of the earnings release. “There will be more failed investments in the future, how does he plan to handle them?”
The operating loss of ¥704.4 billion in the three months ended Sept. 30 easily surpassed the ¥230.8 billion average of analysts’ projections, and compared with a ¥705.7 billion profit a year earlier. Its signature Vision Fund — the world’s single largest pool of startup investments — reported a ¥970.3 billion loss in the quarter.
SoftBank reported ¥537.9 billion of unrealized losses in a plethora of investments from Uber to WeWork. Analysts had predicted a charge to be in excess of $5 billion and as much as $7 billion. The coworking startup was valued at $7.8 billion at the end of September — a precipitous fall from about $47 billion in January.
Late last month, WeWork secured a $9.5 billion rescue package from SoftBank, a deal that handed 80 percent of the company to the conglomerate. That’s on top of the more than $10 billion SoftBank and its Vision Fund have already invested into the coworking giant. SoftBank has said it didn’t get a majority of voting rights, meaning WeWork will be treated as an associate, not a subsidiary — potentially keeping its balance sheet free of some $22 billion of debt and $47 billion in looming lease-payment obligations.
The deal includes $5 billion in new financing and an acceleration of a $1.5 billion existing commitment. SoftBank will also offer to buy as much as $3 billion from existing shareholders. WeWork’s founder Adam Neumann left the company’s board as part of the package, replaced by SoftBank executive and newly appointed Executive Chairman Marcelo Claure.
For its part, WeWork is weighing giving up office floors in at least half a dozen locations in Hong Kong, one of the world’s most expensive property markets.
New York-based WeWork is considering surrendering a portion of a recently signed lease in Wan Chai, near Hong Kong’s central business district, according to people familiar with the matter. The firm leased four floors, or around 60,000 square feet (about 5,600 square meters), for nine years in the Hopewell Centre in August, one of the people said, asking not to be identified because the details are private.
Agents are approaching clients on behalf of WeWork to replace it in five other locations across the city, another person said. Those locations are in various stages of renovation but WeWork would consider relinquishing them if it finds companies willing to take over, that person said.
The potential retreat comes after WeWork said just last week it plans to expand its footprint in Hong Kong and open four new locations this quarter. Some of those are among the spaces it is now looking to vacate.
“New executive leadership is evaluating our operations and assets across all geographies, including Hong Kong,” a spokesperson for WeWork said in an email. “We are fully committed to improving the business and ensuring our long-term viability to the benefit of our landlords, members, and employees.”