Published: Fri, November 08, 2019
Economy | By

Japan's SoftBank takes major hit after WeWork valuation tumbles

Japan's SoftBank takes major hit after WeWork valuation tumbles

Japanese giant SoftBank Group said Wednesday it suffered an operating loss of $6.4 billion in the second quarter, the worst in its history, as it took a hit from investments in start-ups including WeWork and Uber.

Japan's SoftBank Corp. plunged to its first quarterly loss in 14 years on Wednesday, dragged down by an $8.9 billion hit at its giant Vision Fund, as CEO Masayoshi Son admitted poor investment judgment and turning a blind eye to problems at startup WeWork.

SoftBank's first quarterly loss in 14 years comes after a terrible quarter for the tech companies backed by Son's venture capital funds, the $100bn (£77bn) Vision Fund and the smaller Delta Fund. SoftBank said the fund's 88 investments were worth about $77.6 billion, a 9.8% gain in value relative to the cost at which it acquired the stakes.

SoftBank's investment in WeWork collapsed in September after the office space provider abandoned a planned listing.

In a bit of good news for Softbank, it said it had won USA regulatory approval from the Federal Communications Commission for US carrier Sprint's merger with T Mobile.

The workspace start-up has gone from an investor darling to cancelling its IPO and seeing its Israeli-American co-founder Adam Neumann pushed out, albeit with a reported package of more than $1.5 billion.

Agents are approaching clients on behalf of WeWork to replace it in five other locations across the city, another person said.

SoftBank rescued the struggling startup last month with a roughly $10 billion injection of cash, taking majority control of the company.

He pointed out that the value of Uber, for instance, has dropped recently, but compared to the price when Softbank invested in Uber, its value has gone up.

The operating loss of ¥704.4 billion in the three months ended September 30 easily surpassed the ¥230.8 billion average of analysts' projections, and compared with a ¥705.7 billion profit a year earlier.

"New executive leadership is evaluating our operations and assets across all geographies, including Hong Kong", a spokesperson for WeWork said in an email.

Before the bailout, the Vision Fund and SoftBank had already invested almost $11 billion into WeWork.

He added that WeWork was not a sinking boat, despite a need to cut spending. The debacle wiped $7.8bn from WeWork's valuation, SoftBank said.

However, speaking with Bloomberg, Jefferies Group senior analyst Atul Goyal was critical of Son's role in the WeWork crisis. The remaining capital is now reserved for investments in existing portfolio companies (including investments in joint ventures with them), fixed distributions, and finance related expenses.

Various negative media reports about WeWork were "true in some sense", Son said.

Like this: