On Wednesday (November 6), the Japanese conglomerate SoftBank Group announced its financial performance for the second quarter of 2019. The company’s losses have been amplified to $6.4 Bn (¥ 704.4Bn) loss from the company’s vision fund.
The company’s release showed that for the quarter ending on September 30, 2019, the loss of vision fund was ¥970.3 Bn. This was due to unrealised loss on valuation of investments (net) of $4.39 Bn (¥537.9 Bn) from investments held at the second quarter-end due to Uber, WeWork and its three affiliates.
The company noted that while the realised gain on sales of investments was $319.2 Mn (¥34.8 Bn), the unrealized gain on valuation of investments was $5.4 Bn (¥589.64 Bn) due to an increase in the fair values of 25 investments including OYO and its affiliate.
OYO: The Star Of SoftBank’s Portfolio
It is to be noted that in Q1 as well, SoftBank Vision Fund recorded unrealised gain on valuation of investments of $3.86 Bn (¥408.5 Bn), based on the increase in fair values of hospitality major OYO and its affiliate among others.
The company has expanded its services to more than 800 cities in over 80 countries, including the US, Europe, UK, India, China, Indonesia, and Japan.
OYO has seen a 3.8x YoY growth in revenue in Aug 2019 (vs. Aug 2018), with 1.2 Mn rooms under management across hotels and homes. The company said it has a strong balance sheet of $2 Bn across group companies, a significant part of which will be further invested in the business.
Overall, SoftBank has invested over $10 Bn so far in Indian startups.
WeWork And Uber: Tumbling Valuations Hurt SoftBank
After announcing Q2 results, group chief Masayoshi Son, “This is the biggest quarterly loss we have seen since our founding. My investment decisions were in many ways poor. I regret them deeply.”
The investment decision Son is referring to is WeWork. In August, WeWork made an enthusiastic filing of draft papers for IPO, which, however, was postponed following the responses of investors. The investor sentiment with draft filings had made it hard for WeWork to even get a valuation of more than $20 Bn with potential public investors.
It is to be noted that earlier this year SoftBank valued WeWork at $47 Bn in the last funding round. However, after a negative investor outlook due to corporate governance issues, SoftBank gained control of the coworking business.
The company has given a $9.5 Bn bailout to the company and finally bid adieu to founder and ex-CEO Adam Neumann after paying $1.7 Bn to him. And now the investor said it would have to “right-size” its business to reach profitability and that would include job cuts.
Son said that the firm was not a “sinking ship”, but acknowledged he had “learned a lot” from the turmoil. “I want to make it clear. Firms that accept SoftBank’s investments must be self-sustaining. We do not make investments for the purpose of rescuing companies. Regarding WeWork… This will remain an exception. I want to make it clear.”
WeWork turmoil has hit the company’s books and its portfolio companies but if Son will slow down on his risk-taking investments, it remains to be seen.