The SoftBank share price gained 12% this morning to reclaim Thursday losses incurred after the tech investor announced a record $27 billion annual loss for its flagship VisionFund, known as the world’s biggest tech investor. That bounceback more than compensated for an 8% drop in the company’s valuation the day before when investors had sold off the stock in anticipation of a heavy loss.
SoftBank’s valuation is heavily tied to the fortunes of the tech sector. Through its $100 billion Vision Fund, the Japanese conglomerate holds stakes in an array of technology companies. Many are still private, and some have gone public, but all of SoftBank’s tech investments are the kind of high growth companies whose valuations have been hit hard since the start of 2022.
Many of the VisionFund and SoftBank’s tech start-up investments are also in companies still making limited revenues or yet to reach profitability. Those are the valuations investors nervous of spiralling inflation and slower economic growth have been punishing most severely during their recent flight from risk.
The NYSE share price of Chinese ride-hailing app Didi, which counts SoftBank as a major investor, has fallen by over 70% this year. SoftBank also has significant stakes in the ride-hailing app Grab, which targets southeast Asia, and Korea’s Coupang, an e-commerce platform, which are both also listed in the USA and have similarly lost almost three-quarters of their market capitalisations this year.
The result of plunges in the valuations of so many of the start-ups SoftBank holds stakes in through the VisionFund was revealed on Thursday to be an annual loss of $27 billion fund. That dragged SoftBank itself to a £10.87 billion net loss for the year. Booming tech sector valuations last year saw the Japanese investor record a record profit of almost $40 billion.
SoftBank’s billionaire founder and chief executive Masayoshi Son was almost wiped out during the dotcom crash over twenty years ago now. However, he brought his company back from the brink with a number of astute investments such as becoming an early backer of the Chinese e-commerce powerhouse Alibaba. He will presumably now be nervous about the risk of history repeating itself in the form of a new tech crash.
Ironically, SoftBank’s $100 billion VisionFund, formed five years ago with investment from the Japanese company itself alongside other investors like the Saudi Arabian sovereign wealth fund and Apple, has been criticised in the past for inflating tech start-up valuations. Its strategy involved heavy backing of high growth companies, encouraging significant early losses as the cost of rapid expansion.
Two years ago SoftBank launched VisionFund II, which it initially planned to be as large as the original fund. However, SoftBank itself is the successor fund’s only major investor. Backers of the first fund declined to extend their support again amid rumours of discontent at the management’s perceived largesse the first time around. New investors also failed to come forward.
The usually ebullient Son struck a more cautious note when addressing shareholders after SoftBank had published its annual results, intimating a more conservative repositioning before adding:
“When the world is in disorder, SoftBank should play defence.”
SoftBank also owns the UK chip designer Arm, which it took private in a 2016 in a deal worth $32 billion. It recently agreed a $40 billion deal to sell Arm on the U.S. chip making giant Nvidia before seeing it fall apart under regulatory scrutiny. The plan is now to re-list Arm, probably in New York, with SoftBank retaining a majority stake. However, the Japanese investor may well now wait for market conditions to improve before moving ahead.
