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SoftBank Group posted an unexpected ¥931bn ($6.2bn) net loss in its second quarter, compounding the pain for shareholders and founder Masayoshi Son after one of the group’s biggest bets, WeWork, filed for bankruptcy this week.
It was the fourth consecutive quarter in the red for the Japanese conglomerate, as gains from the initial public offering of chip designer Arm failed to offset pain from the weak yen and worse than expected writedowns in private market valuations in the three-month period ending in September.
Analysts had expected a net profit of ¥180.8bn, according to S&P Capital IQ. The group had made ¥3tn in net profit in the same quarter last year after selling a stake in Chinese ecommerce group Alibaba.
“It was a disappointing quarter. We didn’t expect them to take impairment charges for private investments and at a higher rate than the last quarter,” said Kirk Boodry, a SoftBank analyst at Astris Advisory in Tokyo, highlighting $2.9bn of writedowns in the private portfolio at the group’s flagship Vision Funds.
“There was an expectation when they took some pretty steep writedowns in the fourth quarter that they had sort of kitchen-sinked everything,” he added.
SoftBank said on Thursday that after some accounting adjustments, its tech-heavy Vision funds made an overall investment gain of $300mn in the second quarter. Vision Fund 1 made a gain of $2.5bn on the back of selling its stake in Arm to SoftBank for $4bn, but Vision Fund 2 fell to a $2.1bn loss, including from the investments in WeWork. Its LatAm Funds also made a $100mn loss.
Calling some of the main private market losses “idiosyncratic”, Navneet Govil, the Vision funds chief financial officer, said “the performance has really stabilised in the past two quarters”.
The Vision funds’ public portfolio lost value in the second quarter for the first time in 12 months, according to Boodry, driven by a reversal in fortunes for logistics companies such as warehouse robotics group AutoStore, as well as consumer fintech Better, after it listed through a merger with a special purpose acquisition company in August.
The second-quarter loss comes as Son hunts for deals in artificial intelligence, fuelled by an expanded war chest following the initial public offering of UK chip designer Arm.
Son told shareholders in June the company was going on the “counteroffensive” after years of asset sales and losses at the Vision funds, including on start-ups such as WeWork, the once high-flying desk-renting start-up hit hard by the pandemic after being heavily backed by SoftBank.
“People ask us the question, what do you mean by offence? It’s not about the pace of investing activity. It means that we’re continuing to look for these AI disrupters. And the bar is very high,” said Govil.
Boodry said he still expected SoftBank to “move away from the defensive approach of the last year and step up its investment pace” even though second quarter “investments were down sequentially”.
The conglomerate was forced to wire $1.5bn to Goldman Sachs and other lenders days before WeWork filed for bankruptcy this week, taking the total SoftBank has committed to the failed shared-office start-up to more than $16bn since its initial investment in 2017, filings analysed by the Financial Times showed.
On Thursday, SoftBank said credit support provided by the Vision Funds “for a letter of credit facility to WeWork from certain financial institutions” increased its liabilities by ¥57bn last quarter. The group said it had largely written down its exposures but that it took a ¥21.6bn loss after exchanging unsecured WeWork notes for shares and convertible bonds.
Yoshimitsu Goto, SoftBank’s finance chief, said during a results call that what happened with WeWork was “regrettable” and that the group needed “to accept the reality and learn lessons from it”.
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