TOKYO – SoftBank Group of Japan on Wednesday said it made a multi-million dollar write-down related to the company's shares in WeWork and Uber, two flashy technology companies that have become poster children for the profits of startup culture .
SoftBank Group is the world's largest technology investor, and it has used its $ 100 billion Vision Fund – backed by its own money as well as large shares of Saudi Arabia's public investment fund and others – to become a kingmaker on the spot by placing big bets on companies that it believes have the potential to dominate entire industries.
On Wednesday, SoftBank said the profits for the six months ended. September stood at 421 billion yen, or nearly $ 3.9 billion, about half the level in the same period a year ago. The figures suggest that SoftBank lost more than $ 6.4 billion in the last three-month period.
SoftBank cited an impairment of nearly $ 4.6 billion in the value of the investment in WeWork, plus impairments in other investments, including Uber, the US withdrawal company.
SoftBank also owns Yahoo Japan, the chip design firm ARM, and the telephone company Sprint in the United States.
But WeWork's fall had the biggest impact on the Japanese company's performance. WeWork's $ 47 billion valuation fell almost overnight after efforts to sell shares to the public uncovered deep governance issues, including questionable financial arrangements involving Adam Neumann, its chairman and founder. SoftBank now values WeWork at $ 7.8 billion. Neumann resigned as the company's CEO at the end of September.
The SoftBank Group invested heavily in Mr. Neumann's vision even though cracks had begun to emerge. While the Vision Fund's business partners poured more money into the loss-making WeWork, Mr. Son's company continued to raise funds, eventually investing $ 10.5 billion in the technology company ahead of its planned offering.
The merger has forced SoftBank Group to pump another $ 9.5 billion into the company, leaving it with an 80 percent stake, but no voting rights for the majority. Neumann walked away with more than a billion payouts .
The WeWork failure has increased control of Mr. Son's role in designing the Vision Fund & # 39; s investment portfolio. The notorious bubbly founder is known for making quick decisions about companies based on intuition as much as overall strategy.
The error steps at WeWork have shaken investor confidence in Mr. Son, according to Mitsunobu Tsuruo, an analyst at Citigroup Global Markets Japan.
"He should be a good judge for choosing winning entrepreneurs, but Neumann was not the case," he said, adding that Mr. Son will need to convince his shareholders that their interests will not be compromised by Softbank's exposure to WeWork.
In some cases, Mr. Son's games have paid off wonderfully. An early gamble on Alibaba, the Chinese e-commerce company, grew to more than $ 100 billion. But other investments have not gone so well. Large holdings in Uber and Slack have begun to look more nearsighted than visionary as stock prices have fallen in the months following their public offering.
WeWork's collapse comes as Mr. Son attempts to raise funds for a second $ 100 billion plus fund aimed at making artificial intelligence investments, as SoftBank announced in July. The company planned to fund the fund with $ 38 billion of its own money and said it expected support from some of the tech industry's top names, including Apple and Microsoft, as well as several major Japanese financial institutions.
At that time, money seemed likely to fund a strategy similar to the one Son has pursued with the first fund: to pump so much money into the selected companies that they overwhelm the rivals with the big financial bulk, so that they can establish close monopoly in important industries.
Critics of the strategy say it has undermined the financial discipline of companies that benefit from the fund's major, and the experience of companies like Uber – which spent billions on buying market shares but have not yet made profits – has given investors second thoughts about that model.