Japanese technology investment firm SoftBank Group suffered its first quarterly loss in 14 years between July and September, dragged down by falling valuations of its biggest tech bets such as WeWork and Uber.
The group’s giant Vision Fund made a 970 billion yen ($8.9bn) loss, a humbling blow for founder, chairman and chief executive Masayoshi Son even as he tries to raise an enormous sum for a second investment fund.
Son, 62, told a news conference on Wednesday that his judgement around WeWork was “not right” in many ways, and that he had turned a blind eye to problems with United States-based shared working space company WeWork’s co-founder Adam Neumann in areas such as corporate governance.
Still, he was defiant that WeWork was still a solid business, saying there would be a “hockey stick” recovery in its profits eventually.
The Japanese investment powerhouse posted an operating loss of 704 billion yen ($6.46bn) in the quarter compared with a 706 billion yen ($6.48bn) profit in the same period a year earlier. It dwarfed a 48 billion yen ($440m) loss forecast by analysts, according to data provider Refinitiv.
Losses from its Saudi Arabia-backed Vision Fund were softened by other more profitable pillars of Son’s empire. Domestic telco SoftBank Corp reported a 9 percent rise in second-quarter operating profit on Tuesday, beating estimates as it was buoyed by its cash-cow mobile business.
But the investment giant’s other investments have failed to deliver the returns needed to keep it profitable, with some such as WeWork needing further bailouts instead.
Last month, SoftBank was forced to spend more than $10bn to keep WeWork going after its failed attempt at a public share offering of shares in New York.
The fair value of SoftBank‘s investment in WeWork fell by $3.4bn in the second quarter.
In fact, the value of most of the Japanese firm’s investments made via its Saudi Arabia-backed Vision Fund, declined in the latest quarter, including ride hailing giant Uber, social media platform provider Slack Technologies and Guardant Health.
For instance, Uber’s stock hit new lows this week as investors anticipated the end of a lock-up period that prevented employees from selling their shares after the firm went public in May.
As scrutiny intensifies into loss-making startups, SoftBank is struggling to recoup its investments by selling its stakes in such firms – an essential step to unlock capital to keep its investment juggernaut growing.
The company did not release a forecast for the current business year, saying there were too many uncertainties. But the outlook could be bleak, as startups like WeWork continue to struggle.
The company is now said to be pulling out of at least half a dozen locations in Hong Kong, one of the world’s most expensive property markets where ongoing protests have disrupted daily business activity, the Bloomberg news agency reported.
WeWork is considering surrendering a portion of a recently signed lease in Wan Chai, near Hong Kong’s central business district, people familiar with the matter said.
In August, WeWork had leased four floors or about 60,000 square feet (5,574 square metres) in the Hopewell Centre building.
Now, property agents are approaching clients on behalf of WeWork to relocate them to five other locations in the city. Those locations are in various stages of renovation, but WeWork would consider relinquishing them if it finds companies willing to take over, Bloomberg cited an anonymous source as saying.
In response, a WeWork spokesperson said in an email that “new executive leadership is evaluating our operations and assets across all geographies, including Hong Kong.”
“We are fully committed to improving the business and ensuring our long-term viability to the benefit of our landlords, members, and employees,” the spokesperson said.
After Neumann left WeWork as part of an agreed $9.5bn rescue package by Softbank, Marcelo Claure, a senior SoftBank executive, was appointed to lead the troubled company.
The new management is also reassessing whether to proceed with about 28 potential office deals in London, its second-largest market. The deals under review are at varying stages, from a preliminary inspection of promising properties to detailed talks.