Tokyo Investors seemed to have anticipated Softbank’s record loss on Thursday. The share price of the world’s largest technology investor fell by eight percent by the close of the Tokyo Stock Exchange. Only after that, Softbank presented the official figures. The bottom line is the largest quarterly loss in the history of the Japanese company.
In total, the shortfall totaled 1.7 trillion yen (around 12.5 billion euros) in the past financial year – caused primarily by the falling prices of technology stocks in Softbank’s portfolio.
The crash is big: in the previous year, Softbank had accounted for the highest net profit in its history with five trillion yen (about 36.7 billion euros). But the rapid decline in the value of tech values has caught the active investor cold. Softbank adjusts the value of its holdings on a quarterly basis, recording gains and losses in its financial statements, even if they are not realized. The fund division therefore made a loss of 2.64 trillion yen (20 billion euros), more than ever before.
The change from a technological conglomerate to an investment group, which has been massively promoted in recent years, is now taking its revenge. Founder Masayoshi Son had set up two billion-dollar funds to invest in start-ups to which he admits disruptive potential: the Vision Fund alone is considered to be worth 100 billion dollars, the successor Vision Fund 2 comes to another 51 billion dollars.
But technology stocks have been under more pressure worldwide than many traditional corporations in recent months. In addition to concerns about the global economy, it is above all the rising interest rates that have slowed the flight of many start-ups. In China, a key market for softbank’s investments, tighter regulation is slowing the once-booming sector.
In addition, there are problems with non-listed technology companies, whose valuations are also under massive pressure. This is particularly noticeable in Vision Fund 2, which has invested money in the Berlin solar startup Enpal, the logistics service provider Forto and the e-scooter company Tier, among others. Competitors such as Tiger Global have also recently experienced a similar situation.
Grab and Didi in a low-level flight
The share price of Korea’s e-commerce giant Coupang alone fell by 40 percent in the last quarter. The Asian competitors of the ride-sharing service Uber were hit even worse: the prices of Grab in Singapore and Didi Chuxing in China have more than halved.
In the past financial year, the Japanese also became the largest single shareholder in Deutsche Telekom behind the federal government. Softbank intends to work more closely with the Bonn-based Dax Group in the future. In order to obtain fresh capital to finance the multibillion-dollar share buyback program, the company has recently also sold shares of the Telekom subsidiary T-Mobile US to the Bonn-based company.
Softbank is currently making profits mainly from its Japanese mobile network Softbank and the British chip designer arm, whose merger with the graphics card manufacturer Nvidia has failed. But they are currently unable to compensate for the high losses from the investments.
For Softbank CEO Son, this is a reason to take the reverse gear: “Now it’s time to take a defensive position,” he explained at the presentation of the balance sheet. Investments are to be sold in order to build up larger cash reserves. Stricter criteria apply to new investments.
Son had already sold shares worth 4.5 trillion yen (about 33.5 billion euros) two years ago – at the height of the corona pandemic – to reduce debt and buy back treasury shares. This allowed him to stabilize the price of Softbank shares at that time. Rising prices subsequently brought him new capital for expansion.
But there is not much room for course maintenance this time. Last year, Softbank announced that it would divest itself of one trillion yen (7.44 billion euros) worth of shares.
However, Son has not lost his optimism with the decline in the value of the investments. The net asset value has fallen only slightly since December to 18.5 trillion yen (137.6 billion euros), and the debt ratio has even improved, he stressed. The Group had earned more from IPOs of its portfolio companies and share sales than it had invested in new companies. “Our ecosystem is working,” the Softbank CEO said.