SoftBank, the Japanese conglomerate headed by Masayoshi Son, just reported another quarter of multi-billion losses for all of its tech-focused investment funds – also known as the Vision Funds.
According to the report shared by the company recently, its combined investment losses during the nine months ended on 31 December amounted to ¥5 trillion ($37.89 billion) compared to $3.34 billion the funds lost during the same nine-month period in 2021.
These losses were partially offset by a $365 million gain from Vision Fund 1 amid the firm’s exit from its position on Uber Technologies (UBER) and various partial exits from some other portfolio companies.
Respectively, the Vision Fund 1 (SVF 1), Vision Fund 2 (SVF2), and the firm’s Latin American investment fund lost $18 billion, $17 billion, and $3.4 billion each. According to SoftBank, four factors heavily influenced the valuation of its portfolio companies during the period. These were inflation, rising interest rates, the prospect of a global recession, and geopolitical tensions – i.e. the war between Russia and Ukraine.
SoftBank’s holdings accounted for 16.9% of its assets by the end of December 2022 with Alibaba making up for 12% of the total while the portfolio companies within SVF 1 and SVF 2 accounted for 16% and 22% of SofBank’s investment portfolio.
The firm also emphasized that the value of its late-stage portfolio companies is standing at $37 billion. These businesses are advantageously positioned to go public when – or if – market conditions improve.
Central Banks and War Turned the Tables for SoftBank
The value of most equities within the tech sector has been plummeting since late 2021 when the Federal Reserve decided to hike interest rates for the first time in many years in response to elevated inflationary pressures.
Just a few months after, the war between Russia and Ukraine started and that put further pressure on market valuations. SoftBank had been deploying a sizable amount of money into startups in the tech sector during the pandemic.
Some of its most prominent investments include Alibaba, Uber, Coupang, DoorDash, ByteDance, Didi Global, and FTX. The timing of these investments was, in some cases, the worst as SoftBank paid top dollar for businesses that are currently worth 60% or less than they were two years ago.
In response to this challenging environment, SoftBank said that it is fully prepare to thrive under three different scenarios. The first scenario would be one of linear recovery since the beginning of 2023 and forward.
The second scenario would be one of continued instability in most macro variables but accompanied by a progressive recovery in market valuations starting in the second half of 2023. Finally, SoftBank is also preparing for further declines in the value of its portfolio companies for what remains of the year while expecting a U-turn at the start of next year.
What Could Be Expected from SoftBank Moving Forward?
Some investors and analysts have started to question if the firm’s investment methodology is as sound as Masayoshi Son – the firm’s legendary founder and CEO – believes. Meanwhile, as most venture capitalists at the moment, SoftBank has paused its efforts to raise further capital for its Vision Funds.
However, the company also been toying with the idea of launching a third Vision Fund to put its cash to use. According to this latest financial report, SoftBank is sitting on cash reserves of $44 billion that could be used to take advantage of today’s low valuations.
However, the company’s statistics show that the amounts invested into portfolio companies by SVF 1 and 2 have declined from $15.6 billion back in the first quarter of 2021 to less than $300 million during the third quarter of 2022.
According to SoftBank’s investors presentation, its priorities at the moment are to diversify its portfolio through further commitments, to monetize some of its assets either by exiting some of its – few – profitable positions, and to distribute money to shareholders via share repurchases or dividends.
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