November 8, 2019
SoftBank Group, whose global platform of investments in new-economy companies includes WeWork and Uber Technologies, took it on the chin with its latest quarterly results. The company posted its first quarterly loss in 14 years, and its largest ever, due mainly to an $8.2-billion write-down on WeWork by SoftBank and its massive Vision Fund.
Overall, SoftBank posted an operating loss of 704 billion yen (US$6.5 billion) in the July-September quarter. That compares to a 706-billion yen profit in the same period a year earlier, and the 48-billion yen loss that was forecast by analysts for the most recent quarter, according to Reuters.
During a Nov. 6 earnings conference in Tokyo, SoftBank chairman and CEO Masayoshi Son issued a mea culpa. Through a translator, he said WeWork’s troubles, which included canceling an initial public offering amid mounting losses, resulted in “quite a large impact” on SoftBank and its Vision Fund, the Verge reported.
“My judgement in investment was not right in many ways,” Son said, according to SoftBank’s translator, adding that he now regretted the decision to underwrite WeWork.
Son also admitted that he had turned a blind eye to problems with WeWork’s then-CEO, Adam Neumann, in areas such as corporate governance. Nevertheless, at the earnings conference he charted a “simple” three-step turnaround process for WeWork, which his company now largely owns.
The first step, according to the Verge, is for WeWork to stop building new offices for three to four years, because new construction represents a steep cost. Step two is for WeWork to cut costs elsewhere, which should be helped by reduced construction.
Finally, Son explained, WeWork can cut off side businesses that aren’t profitable. “So by those three initiatives, we believe that we will be able to have a big improvement in WeWork,” Son said.
Fortune reported that SoftBank’s WeWork hit, along with additional investment losses piling up from its Uber stake, “is leading even some big-name investors to question the merits of the prevailing ‘unicorn’ management strategy that sees accruing massive losses in search of growth as no big deal.”
Goldman Sachs Group CEO David Solomon made the case for such a shift in thinking earlier in the week, according to Fortune. Solomon told a Bloomberg TV interviewer, “it’s important for people to grow, but there’s got to be a clear and articulated path to profitability.”
Although its quarterly losses were comparatively modest at $267 million, Goldman Sachs also saw its investments in Uber, Avantor, Tradeweb Markets and WeWork head south. “I think there’s a little more market discipline coming into play,” Solomon told Bloomberg TV.
Among the choristers reportedly singing the tune of market discipline is Son himself. “I have started to think we should be more cautious on timings for IPOs of companies like WeWork, Uber and Slack,” he said at the Nov. 6 earnings conference. That is, wait until the companies are closer to achieving profitability before taking them public.
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