SoftBank Posts $6.5b Operating Loss After WeWork, Uber Writedowns

SoftBank Group Corp. reported its first quarterly operating loss in 14 years after writing down the value of some of its marquee investments, including WeWork and Uber Technologies Inc.

The operating loss was 704.4 billion yen ($6.5 billion) in the three months ended Sept. 30, the Tokyo-based company said in a statement on Wednesday. That compares with a 230.8 billion yen average of analyst projections compiled by Bloomberg and a 705.7 billion yen profit a year earlier.

SoftBank’s Vision Fund posted a 970.3 billion yen loss in the quarter, citing a drop in valuation of investments. SoftBank reported 537.9 billion yen of unrealized losses in a plethora of investments from Uber to WeWork, which alone prompted 497.7 billion yen of that writedown. Analysts had predicted the charge to be in excess of $5 billion and as much as $7 billion.

The $100 billion Vision Fund had been a driver of profit growth at SoftBank, contributing over $14 billion in mostly paper gains over the past two years. Now, the losses call into question billionaire Masayoshi Son’s investment strategy just as he’s trying to raise an even larger successor to his original mega fund. The shrinking valuation of Uber and WeWork, once among the brightest stars in the SoftBank constellation, also raise prospects of more writedowns in 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?”

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.

Bloomberg