SoftBank Vision Fund loses US$5b as tech slump persists

SoftBank Group Corp. reported another quarterly loss, as its startup investment unit was hurt by sluggish valuations throughout the technology landscape.

The Vision Fund segment lost 660 billion yen ($5 billion) in the three months ended in December for its fourth straight quarter in the red. SoftBank Group as a whole logged a net loss of 783.4 billion yen, missing the analyst estimate for a profit of 205.9 billion yen.

A collapse in valuations last year pummeled the global tech investor, which holds stakes in hundreds of startups. Writedowns in closely held companies outweighed a modest recovery in SoftBank’s listed investments, such as Didi Global Inc. and Grab Holdings Ltd. But as much as valuations have already fallen, investors remain concerned that there may be further cuts yet ahead. 

“Significant unpredictability remains in the labor markets, future monetary policy road map, as well as corporate earnings,” said SoftBank Global Advisers Executive Managing Partner Navneet Govil after the earnings announcement. “Our posture remains defensive, and we’re focused on building resilience.”

That said, the tech investor has “ample cash” to mount an offense in the future, the company’s Chief Financial Officer Yoshimitsu Goto said. 

In an interview, Govil said that Vision Fund 2 has about $6.5 billion to spend on fresh investments and SoftBank may start a third Vision Fund if it decides that’s a better option.

The bulk of SoftBank’s investments is tied to an opaque segment of the investment world, where valuations of closely held companies are dictated by a small group of investors. Lack of visibility on how SoftBank values these investments — which number in the hundreds — continues to create uncertainty with shareholders.

SoftBank’s billionaire founder Masayoshi Son turned his telecom company into the world’s biggest startup investor, aimed at replicating his early success in backing Chinese e-commerce giant Alibaba Group Holding Ltd., but on a bigger scale by deploying billions instead of millions. The effort has been crippled by missteps, most recently by a prolonged slump in tech prices, exacerbated by US-China tensions.

Losses at the Vision Fund deplete capital needed for the kind of big bets SoftBank used to make. Once the world’s most aggressive tech investor, SoftBank’s investment machine has now come to an almost complete stop. In the last quarter, it put less than $350 million in just a handful of startups, a pale shadow of the venture capital giant that invested more than $144 billion in five-and-a-half years.

Many of its portfolio companies are now cutting jobs or downsizing businesses to weather a global downturn in consumer demand, even as markets’ appetite for big initial public offerings is waning. 

“Weakness in global equity markets remains the main risk to the SoftBank story,” Kirk Boodry, an analyst at Redex Research who publishes on SmartKarma, wrote in a note ahead of the earnings release. Weakness in the tech markets could continue to hurt the company if it forces a meaningful delay in the planned initial public offering of SoftBank’s chip design unit Arm Ltd., he said.

One of the keys to reigniting investment activity at SoftBank lies in a successful Arm IPO, and the company’s billionaire founder Masayoshi Son has said he would focus on that task, stepping away from earnings calls. 

Arm reported solid growth for the latest quarter. Revenue rose 28% from a year earlier to $746 million, driven by an increase in internet-of-things gadget adoption and highly royalty rates in smartphones.

SoftBank now plans to list the firm by December. –BLOOMBERG