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SoftBank expected to take hefty hit from WeWork, Uber

Profit estimate for its Vision Fund cut by 580b yen to an operating loss of 367.6b yen for Sept quarter: Mitsubishi UFJ


MASAYOSHI Son's startups have had a rough few months, from a botched initial public offering by WeWork to a sharp decline in shares of Uber Technologies Inc. Now analysts are beginning to calculate that the damage for Mr Son's SoftBank Group Corp will likely reach into the billions of dollars.

Mitsubishi UFJ Morgan Stanley Securities Co cut its profit estimate for SoftBank's Vision Fund, its main investment vehicle, by 580 billion yen (S$7.5 billion) to an operating loss of 367.6 billion yen for the September quarter, citing declines in the stock prices of Uber and Slack Technologies Inc and the withdrawn WeWork IPO.

Sanford C Bernstein & Co estimates that Vision Fund's writedown alone could be as much as US$5.93 billion, with another US$1.24 billion drop for the portion of WeWork owned by SoftBank Group.

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Mr Son is going through a particularly rocky stretch after repositioning SoftBank from a telecom operator into an investment conglomerate, with stakes in scores of startups around the world. He built a personal fortune of about US$14 billion with strategic bets on companies such as China e-commerce giant Alibaba Group Holding Ltd. But the recent troubles have weighed on SoftBank's shares, pushing them down about 30 per cent from their peak earlier this year as investors grow skittish about startup valuations.

"Profits in the (SoftBank Vision Fund) segment may still see considerable volatility ahead," Mitsubishi UFJ analyst Hideaki Tanaka wrote.

Uber's share price drop was the main culprit for Vision Fund's poor performance in the second quarter, Mr Tanaka wrote. He also reduced SoftBank Group's fiscal year operating profit to 1.01 trillion yen, from 1.59 trillion yen.

SoftBank may book a US$3.54 billion drop in the value of its Uber stake, a US$750 million decline for Guardant Health Inc and take a US$350 million hit for Slack, according to Chris Lane, an analyst at Sanford C Bernstein. Mr Lane said the combined writedown for WeWork may be as much as US$2.82 billion, assuming a slide in the company's valuation to US$15 billion from US$24 billion, but remains uncertain. He said his estimates represent a worst-case scenario and may be offset by gains from other unlisted companies.

In an interview with the Nikkei Business magazine, Mr Son said he is unhappy with how far short of his goals his accomplishments to date have fallen. "The results still have a long way to go and that make me embarrassed and impatient," Mr Son said. "I used to envy the scale of the markets in the US and China, but now you see red-hot growth companies coming out of small markets like in South-east Asia. There is just no excuse for entrepreneurs in Japan, myself included."

"It has only just begun and I feel there is tremendous potential there," Mr Son told Nikkei Business. The strategy is to invest in companies that share his vision of a world being reshaped by artificial intelligence, he said.

WeWork and Uber may be losing money now, but they will be substantially profitable in 10 years' time, Mr Son said in the interview. BLOOMBERG