Financial SoftBank Reveals $6.5 Billion Loss From Uber, WeWork

SoftBank Reveals $6.5 Billion Loss From Uber, WeWork
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SoftBank Reveals $6.5 Billion Loss From Uber, WeWork

Posted: 05 Nov 2019 10:53 PM PST

By Pavel Alpeyev

Masayoshi Son is finally disclosing the damage from SoftBank Group Corp.'s bets on WeWork and Uber Technologies Inc. The Japanese investment powerhouse on Wednesday reported its first quarterly operating loss in 14 years -- about $6.5 billion --after writing down the value of a string of marquee investments. It swallowed a charge of 497.7 billion yen ($4.6 billion) for WeWork, whose spectacular implosion turned the once high-flying shared-office startup into a Silicon Valley punchline.

The losses call into question the billionaire founder Son's deal-making approach just as he's trying to raise an even larger successor to his $100 billion Vision Fund. The investment vehicle had been a driver of profit growth at SoftBank, contributing over $14 billion in mostly paper gains over the past two years. The shrinking valuation of Uber and WeWork, once among the brightest stars in the SoftBank constellation, also raises the prospects of more writedowns in the Vision Fund's portfolio with its high exposure to businesses that prioritize growth over profitability. "Son's handling of WeWork raises some fundamental questions about his investment strategy that need to be addressed," Jefferies Group senior analyst Atul Goyal said ahead of the earnings release. "There will be more failed investments in the future, how does he plan to handle them?"

The operating loss was 704.4 billion yen in the three months ended Sept. 30, the Tokyo-based company said in a statement. That easily surpassed the 230.8 billion yen average of analysts' projections, and compared with a 705.7 billion yen profit a year earlier. Its signature Vision Fund -- the world's single largest pool of startup investments -- reported a 970.3 billion yen loss in the quarter.

SoftBank reported 537.9 billion yen of unrealized losses in a plethora of investments from Uber to WeWork. Analysts had predicted a charge to be in excess of $5 billion and as much as $7 billion. The co-working startup was valued at $7.8 billion at the end of September -- a precipitous fall from about $47 billion in January.

Late last month, WeWork secured a $9.5 billion rescue package from SoftBank, a deal that handed 80% of the company to the Japanese conglomerate. That's on top of the more than $10 billion SoftBank and its Vision Fund have already invested into the co-working giant. SoftBank has said it didn't get a majority of voting rights, meaning its troubled investee will be treated as an associate, not a subsidiary -- potentially keeping its balance sheet free of some $22 billion of debt and $47 billion in looming lease-payment obligations.

The deal includes $5 billion in new financing and an acceleration of a $1.5 billion existing commitment. SoftBank will also offer to buy as much as $3 billion from existing shareholders. WeWork's founder Adam Neumann left the company's board as part of the package, replaced by SoftBank executive and newly appointed Executive Chairman Marcelo Claure.

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Ray Dalio--The World Has Gone Mad and the System Is Broken

Posted: 05 Nov 2019 03:16 PM PST