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SoftBank Takes a $4.6 Billion Hit From WeWork. Its C.E.O. Remains Defiant. SoftBank Takes a $4.6 Billion Hit From WeWork. Its C.E.O. Remains Defiant.
(about 3 hours later)
TOKYO — SoftBank Group of Japan on Wednesday said it took a nearly $4.6 billion financial hit from its investment in WeWork, while its chief executive expressed both regret and defiance over his decision to bet heavily on the troubled American office space company. TOKYO — Masayoshi Son makes big bets. Over nearly four decades, the chief executive of SoftBank Group of Japan has spent vast amounts of money to build an investment empire that spans countries and industries and that has increasingly shaken up the technology world.
Masayoshi Son, SoftBank’s leader and the architect of a $100 billion investment push that has shaken up the start-up world, admitted during a news conference that he had misjudged WeWork’s leader and founder, Adam Neumann. On Wednesday, Mr. Son, 62, defended that legacy in the face of his biggest setback in years. SoftBank reported that it took a nearly $4.6 billion hit from its investment in WeWork, the troubled office-space company that has come to symbolize the excesses of start-up culture.
“I overestimated Adam’s good side,” he said, adding that as for “his negative side, in many cases, I turned a blind eye, especially when it comes to governance.” “In the case of WeWork, I made a mistake,” he told investors at a news conference in Tokyo. “I won’t make any excuses. It was a very harsh lesson.”
But Mr. Son shook off criticism of the decisions leading to the investment. He spent more than 40 minutes defending his investment in the company and insisting that SoftBank’s bailout of the company was “not a rescue.” Rather, he said, it was an opportunity to buy up extra shares in the company at a discount, reducing the average cost of SoftBank’s stake by a quarter. Still, he vowed to press on with his grand plan to make major bets on ambitious companies and their founders, hoping to find visionaries whose companies will go on to dominate entire industries.
“We may not be able to make a big gain, but at least we may be able to get back our investment,” he said. “From my perspective, there is no change in our journey,” he said. “No change in our vision. No strategic change. All we will do is to just keep going, keep moving forward.”
SoftBank Group is the world’s largest tech investor, and it has used its $100 billion Vision Fund — backed with its own money as well as major stakes from Saudi Arabia’s Public Investment Fund and others — to become a kingmaker in the space by placing major bets on companies it believes have the potential to dominate entire industries. SoftBank Group is the world’s largest tech investor, and it has used its $100 billion Vision Fund — backed with SoftBank’s own money as well as major stakes from Saudi Arabia’s Public Investment Fund and others — to become a kingmaker in the space.
But the company and Mr. Son have come under increasing pressure to rein in their stable of potential unicorns following the spectacular implosion of the initial public offering of WeWork, the tech-adjacent American real estate company, in late September. But the company and Mr. Son have come under increasing pressure to rein in their stable of potential unicorns — start-ups worth $1 billion or more — following the spectacular implosion of WeWork’s plans for an initial public offering in late September.
On Wednesday, SoftBank said its profits for the six months that ended in September totaled 421 billion yen, or nearly $3.9 billion, about half the level of the same period a year ago. The figures imply SoftBank lost more than $6.4 billion in the most recent three-month period. On Wednesday, SoftBank said its profit for the six months that ended in September totaled 421 billion yen, or nearly $3.9 billion, about half the level of the same period a year ago. The figures imply that SoftBank lost more than $6.4 billion in the most recent three-month period.
SoftBank cited the nearly $4.6 billion write-down in the value of its investment in WeWork, plus write-downs in other investments, including Uber, the American ride-hailing company. SoftBank cited the nearly $4.6 billion write-down in the value of its investment in WeWork, plus write-downs in other investments, including in Uber, the American ride-hailing company.
SoftBank also owns Yahoo Japan, the chip design firm ARM, and the phone carrier Sprint in the United States.SoftBank also owns Yahoo Japan, the chip design firm ARM, and the phone carrier Sprint in the United States.
But WeWork’s fall had the biggest impact on the Japanese company’s results. WeWork’s $47 billion valuation plummeted virtually overnight after its effort to sell shares to the public revealed deep governance issues, including questionable financial arrangements involving Mr. Neumann. SoftBank now values WeWork at $7.8 billion. Mr. Neumann resigned as the company’s chief executive at the end of September. But WeWork’s fall had the biggest impact on the Japanese company’s results. WeWork’s $47 billion valuation plummeted virtually overnight after its effort to sell shares to the public revealed deep governance issues, including questionable financial arrangements involving the company’s founder and former leader, Adam Neumann. He was criticized for leasing buildings he partly owned back to the company, and charging it almost $6 million for its use of the word “We,” which he attempted to trademark.
SoftBank Group bet big on Mr. Neumann’s vision even as cracks had begun to appear. While its partners in Vision Fund balked at throwing more money at the loss-making WeWork, Mr. Son’s company continued pouring funds into the venture, eventually investing $10.5 billion in the tech firm ahead of its planned offering. SoftBank now values WeWork at $7.8 billion. Mr. Neumann resigned as the company’s chief executive at the end of September.
The meltdown has forced SoftBank Group to pump an additional $9.5 billion into the company, leaving it with an 80 percent stake but no majority voting rights. Mr. Neumann walked away with more than a billion-dollar payout. SoftBank Group bet big on Mr. Neumann’s vision even as cracks began to appear. While its partners in Vision Fund balked at throwing more money at the loss-making WeWork, Mr. Son’s company continued pouring funds into the venture, eventually investing $10.5 billion in the tech firm ahead of its planned offering.
Mr. Son said he had taken several lessons from the experience with WeWork, including the importance of not allowing founders to dominate a company’s board and voting rights. At one point, filings for WeWork’s public offering said that Mr. Neumann’s shares in the company would give him 20 votes to every one granted a regular share. The meltdown forced SoftBank Group to pump an additional $9.5 billion into the company, leaving it with an 80 percent stake but no majority voting rights. Mr. Neumann walked away with more than a billion-dollar payout.
In his remarks, Mr. Son shook off criticism of his investment in WeWork, which has become a symbol of his overall strategy of feeding potential unicorns with enormous quantities of cash so they can quickly grow large enough to overwhelm their competitors.
Over more than 40 minutes, he defended his investment in the company, praised the quality of its product, and insisted that SoftBank’s bailout of the company was “not a rescue.”
Rather, he said, it was an opportunity to buy up extra shares in the company at a discount, reducing the average cost of SoftBank’s stake by a quarter.
“We may not be able to make a big gain, but at least we may be able to get back our investment,” he said.
The biggest mistake he had made was misjudging Mr. Neumann, Mr. Son said.
“I overestimated Adam’s good side,” he said, adding that as for “his negative side, in many cases, I turned a blind eye, especially when it comes to governance.”
Mr. Son said he had taken several lessons from the experience with WeWork, including the importance of not allowing founders to dominate a company’s board and voting rights.
“Are there any other similar concerns? In fact, yes there are,” he said, mentioning Softbank’s investment in the dog walking company Wag, which has come under scrutiny in recent weeks as it has lost ground to competitors.
“We may see similar problems surfacing,” he said.
The WeWork fiasco has increased scrutiny of Mr. Son’s role in shaping the Vision Fund’s investment portfolio. The notoriously exuberant founder is famous for making snap decisions about companies based on intuition as much as overall strategy.The WeWork fiasco has increased scrutiny of Mr. Son’s role in shaping the Vision Fund’s investment portfolio. The notoriously exuberant founder is famous for making snap decisions about companies based on intuition as much as overall strategy.
The missteps at WeWork have shaken investors’ confidence in Mr. Son, according to Mitsunobu Tsuruo, an analyst at Citigroup Global Markets Japan.The missteps at WeWork have shaken investors’ confidence in Mr. Son, according to Mitsunobu Tsuruo, an analyst at Citigroup Global Markets Japan.
“He’s supposed to be a good judge for picking winning entrepreneurs, but Mr. Neumann was not the case,” he said, adding that Mr. Son would need to convince his shareholders that their interests will not be compromised by SoftBank’s exposure to WeWork. “He’s supposed to be a good judge for picking winning entrepreneurs,” but that was not the case with Mr. Neumann, he said, adding that Mr. Son would need to convince his shareholders that their interests would not be compromised by SoftBank’s exposure to WeWork.
In some cases, Mr. Son’s bets have paid off spectacularly. An early gamble on Alibaba, the Chinese e-commerce company, grew to more than $100 billion. But other investments have not fared as well. Large stakes in Uber and Slack have begun to look more nearsighted than visionary as their share prices have fallen in the months following their public offerings. In some cases, Mr. Son’s bets have paid off spectacularly. An early gamble on Alibaba, the Chinese e-commerce company, grew to more than $100 billion. But other investments have not fared as well. Large stakes in Uber and Slack have begun to look more nearsighted than visionary as the companies’ share prices have fallen in the months following their public offerings.
WeWork’s collapse comes as Mr. Son is trying to raise funds for a second $100 billion-plus fund aimed at making investments in artificial intelligence, which SoftBank announced in July. The company planned to finance the fund with $38 billion of its own money and said it expected backing from some of the tech industry’s top names, including Apple and Microsoft, as well as several major Japanese financial institutions.WeWork’s collapse comes as Mr. Son is trying to raise funds for a second $100 billion-plus fund aimed at making investments in artificial intelligence, which SoftBank announced in July. The company planned to finance the fund with $38 billion of its own money and said it expected backing from some of the tech industry’s top names, including Apple and Microsoft, as well as several major Japanese financial institutions.
At the time, it seemed that money would likely finance a strategy similar to the one Mr. Son has pursued with the first fund: pumping so much money into his chosen companies that they overwhelm their rivals with their sheer financial bulk, allowing them to establish near monopolies in key industries. Critics of Mr. Son say his investment strategies have undermined financial discipline at the companies that benefit from the fund’s largess, and the experience of companies like Uber — which spent billions on buying market share but has yet to turn a profit — has given investors second thoughts about that model.
Critics of the strategy say it has undermined financial discipline at the companies that benefit from the fund’s largess, and the experience of companies like Uber — which spent billions on buying market share but has yet to turn a profit — has given investors second thoughts about that model. But at the news conference, Mr. Son dismissed broader doubts about his investment strategy, urging investors to take the long view on his plays on companies like Uber. Alibaba, which has become SoftBank’s golden goose, and other investments took time to pay off, he pointed out.
But at the news conference, Mr. Son dismissed broader doubts about his investment strategy, urging investors to take the long view on his plays on companies like Uber. Alibaba, which has become SoftBank’s golden goose, took time to pay off, he pointed out. Twenty years ago, “when I invested in internet companies, people said it was a bubble,” he said. But now “seven out of the top 10 companies by market value are internet companies.”
“From my perspective, there is no change in our journey,” he said to laughs from the audience. “No change in our vision. No strategic change. All we will do is to just keep going, keep moving forward.”