SoftBank Group Corp founder Masayoshi Son is used to praise and encouragement from shareholders. But the company's loss of US$34 billion in market value over the last year is a test for even his most faithful admirers when they gather for the annual shareholders' meeting on Friday (Jun 24).
Investors stuck by Son when SoftBank announced a holding company strategy in 2015 to hive out its staid but profitable domestic telecom business to become the world's largest investor in volatile tech startups. When the Vision Fund booked an US$18 billion loss on investments like WeWork and Uber Technologies in 2020, they pointed to Son's ability to win thousands-fold returns on Alibaba Group Holding. When Son preached patience as the stock began a downward trajectory from a March peak last year, they listened and hung on.
But 5 years of deploying US$142 billion has now resulted in a record 2.1 trillion yen (S$21.5 billion) loss for the company in the quarter ended in March. Much of that can be pinned on the recent global sell-off in tech and a crackdown on China's biggest technology companies, but much can also be attributed to SoftBank's pressure on companies to make big, aggressive bets.
With SoftBank's own financial health on the line, shareholder confidence is near a breaking point, said Mio Kato of LightStream Research. Son needs to show how SoftBank adds value as an investor and chart steps - such as further share buybacks financed by sales of Alibaba stocks - for the stock price to recover, he said.
"Investors remain loyal as long as they believe in your dream, but once they realise things aren't working, trust crumbles in an instant," Kato said.
Shareholders looking for signs of recovery see a portfolio awash with red instead. SoftBank bet more than US$12 billion on Chinese ride-hailing firm Didi Global, but Didi delisted from the New York Stock Exchange less than a year after its IPO (initial public offering) and that stake is now worth less than US$3 billion. South Korean ecommerce company Coupang's shares are down close to 70 per cent from a year earlier, and other publicly listed companies - which represent only a fraction of its portfolio companies - have similarly tumbled in value.
Anxiety remains high that big write-offs might yet 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 headcount reductions include Swedish payments firm Klarna Bank and privacy management company OneTrust, while Bloomberg News has reported staff cuts at chip unit Arm.
Questions also linger on whether anyone on SoftBank's board is able to provide proper oversight. SoftBank's board has lost its most independent voices in recent years, including outgoing outside director Tan Lip-Bu who cautioned that Son "needs people to provide safeguards, give him advice and make him even more successful" in an open departure letter. "Poor choices made too quickly can have negative consequences for the company."
A key item on Friday's agenda is SoftBank's appointment of David Chao to replace Tan as an external director. Chao - a co-founder and general partner at venture capital firm DCM - had previously invested in companies such as vertical farming startup Plenty and personal finance startup SoFi Technologies, in which the Vision Fund also invested. SoFi in 2017 was embroiled in a sexual harassment investigation that led to the ouster of its CEO.
"This feels like a continuation of the degradation of the strength of board oversight," Kato said about Chao. "Given some of the scandals at SoFi which he had invested in, it is not a ringing endorsement of his ability to contribute to better governance at SoftBank."
SoftBank this year will conduct fewer and smaller deals, Son has said. So far this year, the average size of SoftBank's Vision Fund 2 investments stood at about US$100 million to US$200 million in more than 50 funding rounds, compared with around US$900 million for Vision Fund 1. In January-March, the Vision Fund doled out US$2.5 billion, or less than one-fourth of the US$10.4 billion it spent the previous quarter.
SoftBank's emphasis on breakneck speed remains the same, however. It reached a decision to invest in Japan's AI Medical Service (AIM) within 2 months of a 30-minute Zoom meeting in February between founder Tomohiro Tada and Son. After Tada's presentation of the company - which uses artificial intelligence to help clinicians identify potential cancers of the stomach and intestines - Son spent 15 to 20 minutes asking for numbers to back up the accuracy of AIM's technology, Tada said.
Several minutes into the call, Son suggested Tada should seek as much as US$74 million, double the sum Tada proposed. The two also brainstormed possible business models for when AIM would scale up, Tada said. Following an intense 2 weeks of some 150 email exchanges, SoftBank in April led an US$59 million funding round into AIM.
Due to Covid-related precautions, only 150 shareholders will attend Friday's meeting at SoftBank's headquarters in Tokyo, which will be broadcast via a Web portal. Son will take questions selected from those submitted in writing online, SoftBank said. BLOOMBERG