One of Softbank's slogans is that it "invests in human progress." If its latest forecasts are anything to go by, the returns are disappointing, to say the least.
Its legendary $100bn Vision Fund, which has been behind major investments in Uber, WeWork and British chip designer Arm Holdings, says it expects to lose JPY 1.8 trillion ($16.7bn) in FY2019 [PDF].
The Japanese company said the losses would be the result of "a decrease in the fair value of investments due to the deteriorating market."
Building up its influential portfolio, Softbank has made bets on internet-based "disintermediation" concepts such as Uber and WeWork, as well as telecoms in the form of Sprint and chip technology such as Arm Holdings, which it bought expecting a stratospheric demand for IoT processors.
Even before the current viral crisis, signs were not good. In September last year, it was estimated that SoftBank was $600m in the red with its Uber investment, after its disappointing IPO.
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Softbank chairman and CEO Masayoshi Son lost $70bn in the dotcom crash during the early years of the 21st century. But he kept on investing and hit gold with a promising Chinese ecommerce start-up, Amazon look-alike Alibaba, worth about $480bn in late 2019.
Launched in May 2017, the Vision Fund is supported by sovereign wealth funds from Saudi Arabia and The United Arab Emirates, as well as other technology companies including Apple, Qualcomm, Foxconn, and Sharp.
But the Fund now has to contend with two challenges at the same time. Firstly, some of the companies it invests in – such as Uber and WeWork – have yet to demonstrate that their business models, innovative and paradigm-shifting though they may be, can turn a profit. Secondly, the International Monetary Fund is now forecasting the worst recession since the 1930s will hit the global economy, which could shrink by 3 per cent during 2020 as a result of the COVID-19 virus outbreak and related social lockdowns. By way of comparison, the global economy fell 0.7 per cent in 2009 following the credit crunch.
The IMF said that in 2021, the world economy could recover and grow at a 5.8 per cent. But the forecast was characterised by "extreme uncertainty." It could be far worse, depending on the course of the pandemic, it said.
Still, SoftBank remains drawn to hyperbole. CEO Son said that "with improving microprocessor capabilities to process these vast amounts of data and accelerating communication speeds, I believe it is only a matter of time before the arrival of Singularity, a world of 'Super-intelligence' where machines surpass human intelligence. In a world like this, all sectors of society and industry will be redefined, ways of doing business and lifestyles will see foundational change and new business opportunities will be created."
The philosophy underpins an investment strategy that would see the company grow for 300 years, it claims. But to do so it needs investors with deep enough pockets to help it survive for the next 12 months. ®