SoftBank continues to make headlines and not for good reasons. This week, the Japanese tech firm announced that its profits plummeted 99 percent year-over-year for the three months ending in December. SoftBank reported operating income of $23.6 million, which reflects the massive losses.
Most of the fall is attributable to SoftBank’s $100 billion tech fund. The Vision Fund has major stakes in companies like WeWork and Uber, which are both bleeding money. The Vision Fund and a related fund lost nearly $2 billion alone in the last quarter of 2019.
SoftBank’s founder and CEO Masayoshi Son confirmed the bad news during Wednesday’s earnings presentation. He said that the Vision Fund’s poor performance is scaring potential investors from participating in the next evolution of the conglomerate’s tech plans.
In 2019, SoftBank began taking steps towards forming Vision Fund 2. The company signed memorandums of understanding (MOUs) with over a dozen companies. At the time, SoftBank expected to raise $108 billion from tech behemoths, including Apple and Microsoft.
Problems in the Portfolio
SoftBank’s portfolio includes WeWork and Uber. Both companies transformed the world and grew at alarming rates throughout the 2010s. WeWork took the coworking concept to new heights and gave entrepreneurs and small businesses an option for affordable real estate. Obviously, Uber led the ride-hailing movement.
Now, both are struggling mightily to turn a profit. WeWork’s IPO failed, and its founder, Adam Neumann, was ousted. The startup laid off 2,400 employees at the end of last year. SoftBank injected $10 billion into the company to save it from the brink of bankruptcy.
Uber’s stock has fallen 8 percent since going public last May. The unicorn lost $5 billion in Q2 2019 alone. Still, CEO Dara Khosrowshahi is hopeful. He believes Uber has a largely untapped $12 trillion addressable market ahead of it. Much of the runway is in the freight, food delivery, and self-driving opportunities.
Son recognizes investor hesitancy after a rough 2019. “At the moment, I think that our next fund size should be a little bit smaller, because we have caused concerns and anxiety to a lot of people,” he said. As far as Vision Fund 2 is concerned, SoftBank could fund it entirely on its own. However, Son says there is still interest from potential partners.
Hope Remains for SoftBank
There is some hope for the Vision Fund portfolio. Nearly 30 companies reported gains last year. Five of the eight companies that have gone public are in the black. The cancer diagnostics firm, Guardant Health, is SoftBank’s brightest spot. The company has gained $1.9 billion, which helps offset Uber’s $1.1 billion loss.
Also, the U.S. approved the massive $26 billion merger between Sprint and T-Mobile. SoftBank acquired Sprint in 2012. The approval gave a 12 percent boost to SoftBank’s value in Tokyo. Offloading Sprint takes $44 billion of debt off of Softbank’s shoulders.
Son and team remain optimistic about the company’s tech endeavors overall. They’ve invested heavily in turning WeWork around, and Uber is focusing more on profitability. As Khosrowshahi puts it, “the era of growth at all costs is over.”