If any tech CEO is having a worse 2020 than Masayoshi Son, the SoftBank billionaire sure would love to meet them.
Last year was awful enough for his US$100 billion Vision Fund empire, which ended with him “embarrassed” over his giant loss on WeWork. The collapse of the office-hive startup killed one of last year’s most anticipated initial public offerings.
Son’s $8.2 billion write-down blew a gaping hole in SoftBank’s balance sheet. Those were good times, as it turns out.
Fallout from the coronavirus outbreak is now making 2019 seem like a breeze. The fast-spreading respiratory illness is slamming businesses that specialize in human interaction – areas of particular exposure for Son’s investment team.
In this way, SoftBank’s stumble in 2020 is a microcosm of how the multibillion-dollar sharing economy is on the brink of its own crisis.
Into the abyss
WeWork’s expensive office-sharing sites from New York to Paris to Singapore are increasingly lonely places. Ditto, ride-sharing giants Uber, China’s Didi Chuxing, Southeast Asia’s Grab, India’s Ola, Brazil’s 99 and others – all Son investments – are on the front lines of government lockdowns and social-distancing decrees.
By mid-March, SoftBank’s stock had plunged 50% in only one month – a rout that included the biggest single-day loss since Son floated shares in 1994. Son has stabilized things – for now – by signaling plans to sell some of his giant stake in Alibaba Group and other assets. All told, the plan targets raising $41 billion to pay down debt and buy back shares.
It might not be that simple, of course. Moody’s Investors Service nudged SoftBank even deeper into junk territory by downgrading it from Ba1 to Ba3 on March 25. Credit rater Moody’s, like many investors, questions the merits of dumping cherished assets in a down market.
“Asset sales will be challenging in the current financial market downturn, with valuations falling and a flight to quality,” said Motoki Yanase, Moody’s vice-president and senior credit officer.
SoftBank was livid, demanding Moody’s remove its ratings entirely. Son’s team accused Moody’s of bias, and of giving short shrift to SoftBank’s plan to trim underperforming bets.
As this brawl plays out, though, the cost of insuring SoftBank bonds from default is about the highest levels in a decade, a reminder Son’s debt burden is a growing worry.
Pain to come
Yet SoftBank’s troubles are a harbinger of the pain to come, not only for a sharing economy that seemed unstoppable two months ago, but for the startup game in general.
The former is seeing a brutal about-face. One of the most disruptive sectors of the last decade is being disrupted by low-tech pathogens. In 2014, the sharing of assets and services between peers or businesses generated about $15 billion of revenues globally. By 2025, consultancy PwC reckons it will be worth roughly $335 billion.
Now, who knows? In the short term, businesses in the realms of car-sharing, travel, delivery, staffing and finance are all taking monster hits as the Covid-19 pandemic spreads. That includes another of Son’s investments: hotel-booking service Oyo. Skeptics are lining up since the Indian startup scrapped its IPO, some even calling it the “next WeWork.”
That’s a dreadful omen for Airbnb, whose business model is running afoul of shelter-in-place orders. The list of former high-flyers facing reckonings includes car-swapping app Getaround, travel operations like Klook, bicycle outfits from New York’s Citi Bikes to Seoul’s Ddareungi, freelancer app TaskRabbit, courier services like Postmates, asset-related platforms like Handy, scooter services like Lime, car-moving services like JustPark, fitness shops like Gympass, pet walkers like DogVacay and food and grocery-delivery outfits UberEats, DoorDash, GrubHub and Instacart, once cities ban all travel.
SoftBank’s stumble also has massive implications for the venture capital game. Since 2016, Son’s Vision Fund juggernaut has become a central bank of sorts for the startup set. For young entrepreneurs, no meeting is more coveted than a 10-minute pitch to Japan’s second-richest man.
Finding the next ‘unicorn’
Singlehandedly, Son remade VC, sprinkling $1 billion here and $3 billion there on would-be disruptors the world over. Sure, it’s about finding the next tech “unicorn” in different sectors. It’s also about finding the next Alibaba.
Son made his reputation as a savvy investor in 2000 when he bet $20 million on an obscure English teacher in Hangzhou. When Jack Ma took Alibaba public in 2014, Son’s stake was worth nearly $60 billion. Son has been trying to recreate that magic ever since.
The Vision Fund’s strategy has been scattershot, though. In Son’s basket are makers of microchips, robots, satellites and solar panels as well as e-commerce platforms, indoor farms, investment outfits and, of course, the shared-office hives and ride-sharing wagers now threatening the fund’s foundations.
Yet that strategy is running into heavy losses – bleeding that’s intensifying with coronavirus risks.
Even though SoftBank’s shares rebounded since Son’s plan to sell shares in Alibaba, they’re still down 34% since mid-February. That leaves less cash – and risk appetite – for Son to continue supporting startup values. In fact, it might see him withdrawing support for startups now taking his largess for granted.
The WeWork mess is ongoing. In late 2019, Son faced a choice: save it or let it fail. He went the former route, arranging a roughly $9.5 billion bailout, a decision that frustrated many SoftBank shareholders. Now, as global markets swoon, Son is being forced to reconsider and throttle back on the rescue plan.
Turning conservative
Earlier this week, Yoshimitsu Goto, SoftBank’s chief financial officer, told investors the company was turning conservative with new investments in these uncertain economic times, reported CNN. That’s fine by analysts like Atul Goyal of Jefferies, who seem doubtful that the Vision Fund has been a plus for SoftBank’s broader performance.
Consider SoftBank an economic indicator of sorts for the Silicon Valley set. Its vast, disparate holdings make it uniquely vulnerable to the most unpredictable crisis in memory – a pandemic triggering an economic crash.
It’s put many of Son’s biggest investments in harm’s way – but not all, of course.
Son-backed work communications service Slack Technologies is having a good pandemic. Amid a bull market in hunkering down, outfits from video conference app Zoom to stationary cycling juggernaut Peloton find themselves in the right places at a disorienting time.
Yet overall, Son now finds the sharing economy that looked like the future an existential threat to his empire. That might give pause for thought to those young innovators with dreams of getting 10 minutes in the office of the globe’s most important investor.
Well – there’s always a video call.