Struggling Japanese conglomerate SoftBank Group on Monday reported record losses, as the coronavirus pandemic compounded woes caused by its investment in troubled office-sharing start-up WeWork.
The telecoms and investment giant had already sounded the alarm, warning last month that the “deteriorating market environment” would hit its bottom line.
But the results were slightly worse than it had forecast, with net losses for the year that ended in March coming in at 961.6 billion yen (US$8.9 billion), rather than the estimated $8.4 billion.
Operating losses for the year were 1.36 trillion yen, having forecast 1.35 trillion last month.
The conglomerate headed by flamboyant chief Masayoshi Son said it had been “adversely affected” by the global health crisis.
And it warned that “if the pandemic continues, the company expects that uncertainty in its investment businesses will remain over the next fiscal year.”
Its investment funds, including the key Vision Fund, recorded operating losses of 1.9 trillion yen, and the company said it was working with firms in the Vision Fund portfolio to prepare them for a “further deterioration in business conditions.”
The results are the latest blow to Son, who has transformed what began as a telecoms company into an investment and tech behemoth with stakes in some of Silicon Valley’s hottest startups through its $100-billion Vision Fund.
He has faced increasing criticism over his determination to pour money into startups that some analysts say are overvalued and lack clear profit models.
His biggest headache has come from WeWork, once hailed as a dazzling unicorn valued at $47 billion.
Son stood by his investment, even upping his stake, despite mounting questions about WeWork’s strategy.
‘Poor’ investment decisions
But things began to unravel last year as WeWork hemorrhaged cash and canceled its share offering, with founder Adam Neumann pushed out.
SoftBank Group and its Vision Fund have already committed more than $14.25 billion to the startup, but in April the Japanese firm scrapped a plan to buy up to $3 billion WeWork shares as part of a restructuring program.
WeWork is now suing SoftBank over the decision, alleging breach of contract.
The debacle has weighed heavily on the firm, which has struggled to raise funds for a much-mooted second $100-billion Vision Fund.
Investors are increasingly questioning whether the supposedly cutting-edge businesses targeted by SoftBank are really offering something new, said Masahiko Ishino, an analyst at Tokai Tokyo Research Institute.
“Before, they said they were investing in cutting-edge technologies like AI, but what they have done is often old-fashioned, like property investments and hotels,” he said, referring to WeWork and struggling hotel start-up OYO.
“Suppose you have 10 billion yen and 20% of it has been burned in someone else’s hands. Would you like to chip in more money there?” he said of the struggle to attract investors to the second Vision Fund.
In February, Son admitted he had made “poor” investment decisions and expressed regret as the company said net profit had plunged nearly 70% for the nine months to December.
And in March, with stock markets plunging as the scale of the coronavirus pandemic became clear, the firm announced a plan to sell up to $41 billion in assets to finance a stock buy-back, reduce debts and increase cash reserves.
It announced plans to buy back $18 billion worth of stock, saying it believed its shares were “substantially undervalued.”
The firm also unveiled changes to its board that will see Chinese tycoon Jack Ma step down after 13 years as a director.