(Bloomberg) – SoftBank Group Corp. founder Masayoshi Son is used to praise and encouragement from shareholders. But the company’s $34 billion loss in market value over the past year is a test for even its most loyal admirers as they gather for the annual shareholder meeting on Friday.
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Investors were stymied by Son when SoftBank announced a holding company strategy in 2015 to spin off its domestic, but profitable, telecommunications business to become the world’s biggest investor in volatile tech startups. When the Vision Fund posted an $18 billion loss on investments like WeWork and Uber Technologies Inc. in 2020, they pointed to Son’s ability to earn thousands of times on Alibaba Group Holding Ltd. When Son preached patience as the stock began a downward trajectory from a peak in March last year, they listened and latched on.
But five years of the $142 billion rollout has now resulted in a record loss of 2.1 trillion yen ($15.4 billion) for the company in the quarter ended March. Much of this can be attributed to the recent global tech sell-off and crackdown on China’s biggest tech companies, but much can also be attributed to SoftBank’s pressure on companies to do big aggressive bets.
With SoftBank’s own financial health at stake, shareholder confidence is near breaking point, said Mio Kato of LightStream Research. Son is to show how SoftBank is adding value as an investor and chart the steps — such as further share buybacks funded by the sale of Alibaba stock — for the stock price to recover, it said. -he declares.
“Investors stay loyal as long as they believe in your dream, but once they realize things aren’t working, trust plummets in an instant,” Kato said.
Shareholders looking for signs of recovery instead see a portfolio awash in red. SoftBank bet more than $12 billion on Chinese company Didi Global Inc., but Didi was delisted from the New York Stock Exchange less than a year after its IPO and that stake is now worth less than $3 billion. . Shares of South Korean e-commerce firm Coupang Inc. have fallen nearly 70% from a year earlier, and other listed companies – which make up only a fraction of its portfolio companies – also fell in value.
Anxiety remains high that big radiation could still be ahead. A number of portfolio companies have been forced to restructure or raise funds at lower valuations. SoftBank-backed firms that have recently announced staff cuts include Swedish payments firm Klarna Bank AB and privacy management firm OneTrust, while Bloomberg News reported staff cuts at chip unit Arm ltd.
Questions also remain about whether a SoftBank board member is able to provide proper oversight. SoftBank’s board has lost its most independent voices in recent years, including outgoing outside chief Lip-Bu Tan who warned that Son “needs people to provide guarantees, give him advice and make him even better” in an open letter of departure. “Bad choices made too quickly can have negative consequences for the business.”
A key item on Friday’s agenda is SoftBank’s appointment of David Chao to replace Tan as outside director. Chao – co-founder and general partner of venture capital firm DCM – had previously invested in companies such as vertical farming startup Plenty Inc. and personal finance startup SoFi Technologies Inc., in which the Vision Fund also has invested. SoFi in 2017 was embroiled in a sexual harassment investigation that led to the ousting of its CEO.
“It looks like a continuation of the degradation of the board’s oversight strength,” Kato said of Chao. “Given some of the SoFi scandals he had invested in, this is not a ringing endorsement of his ability to contribute to better governance of SoftBank.”
This year, SoftBank will make fewer and smaller transactions, Son said. So far this year, the average investment size for SoftBank’s Vision Fund 2 has been around $100 million to $200 million in over 50 funding rounds, compared to around $900 million for Vision Fund 1. January-March, the Vision Fund distributed $2.5. billion, less than a quarter of the $10.4 billion spent the previous quarter.
SoftBank’s emphasis on breakneck speed, however, remains the same. He made the decision to invest in AI Medical Service Inc. in Japan within two months of a 30-minute Zoom meeting in February between founder Tomohiro Tada and Son. After Tada introduced the company – which uses artificial intelligence to help clinicians identify potential stomach and bowel cancers – Son spent 15-20 minutes asking for numbers to back up the accuracy of the technology from AIM, Tada said.
Several minutes into the call, Son suggested that Tada should seek up to $74 million, which is double the sum Tada offered. The pair also brainstormed possible business models for when AIM expands, Tada said. After an intense two weeks of some 150 email exchanges, SoftBank completed a $59 million funding round in AIM in April.
Due to Covid precautions, only 150 shareholders will attend Friday’s meeting at SoftBank’s Tokyo headquarters, which will be streamed via a web portal. Son will answer questions selected from those submitted in writing online, SoftBank said.
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