Belgius Capital Commentary

Belgius Capital


Softbank has gone, well – squishy. This after valuations in WeWork, Uber, and Slack have gone seriously awry and may just cost SoftBank Group Corp billions of dollars, according to Bloomberg. A now different and somewhat somber situation for SoftBank Group CEO Masayoshi Son, whose reputation in the investment community has gone from hero to nearly zero.

Masayoshi Son; [Japan’s tech visionary equivalent in some sense to Bill Gates] who was once the stellar darling in venture capital from identifying unicorns and investing heavily in them may end up with the mythical burden of carrying a big rock just like that of Sisyphus. After rolling it high up the mountain with incomprehensible valuations, that rock then rolls back down with the oppressive reality of gravity.

The same can be said of the likes of Uber and Slack, who are now suffering the same fate as a falling rock. These drastic valuation declines may cost Softbank’s Vision Fund an estimated operating loss of US$3.5 Billion for the 3Q19, slashing its profit forecasts by US$5.4 Bn, as reported by Mitsubishi UFJ Morgan Stanley Securities Co in a recent note. What exacerbated SoftBank’s dilemma includes the massive write-down of WeWork after the IPO was shelved and the valuation collapsed in September.

SoftBank’s portfolio of underperforming unicorns is indeed disrupting its future. In a note to clients, Sanford C. Bernstein & Co. says that SoftBank’s Vision Fund could write-down US$5.93 Bn of WeWork, and the SoftBank Group could write down another US$1.2 Bn.

At the helm of this SoftBank fiasco is the CEO, Masayoshi Son who when speaking with Nikkei Business Magazine while all flustered and embarrassed said, "the results still have a long way to go, and that makes me embarrassed and impatient, I used to envy the scale of the markets in the USA and China, but now you see red-hot growth companies coming out of small markets like in Southeast Asia. There is just no excuse for entrepreneurs in Japan, myself included."

With hindsight, Son’s aggressive strategy of nitpicking technology companies without regard for valuation over the last several years is now taking its toll. What we mean is proper, old-fashioned tools for valuation. While we understand that tech companies can be a class on their own – we still adhere to the metrics of profitability and returns. When will these companies be profitable? [Mind you, these unicorns that generate billions of dollars in revenues are still in the red, as far as income statements are concerned.] The VC world has coined a term for this investment phase.

What we see now is that macroeconomic headwinds are hitting the global economy, and this may mean that technology unicorns may – reset. This is more bad news for SoftBank, who may need to incur steep losses and massive write-downs all the way to 2020 – or when the global economy gears up for recovery.

Which, when all current indications are flashing warnings that a global recession is looming – will not happen anytime soon.