Interactive Investor

Softbank apologises for WeWork errors

Buying a massive stake in the controversial office provider has lost the company billions.

6th November 2019 14:37

Graeme Evans from interactive investor

Buying a massive stake in the controversial office provider has lost the company billions.

Investment mistakes rarely come more costly than the one by tycoon Masayoshi Son after an ill-fated wager on the WeWork serviced offices giant helped to leave his firm $6.5 billion in the red.

Japanese technology group SoftBank, best known among UK investors for spending £24 billion on chip designer Arm Holdings in the aftermath of the Brexit vote in 2016, revealed the hit in quarterly results today.

The company's first quarterly loss in 14 years led to an unprecedented apology from founder and chief executive Son, whose backing for US start-up WeWork backfired when the office-sharing business failed to complete its IPO.

He said:

"My investment judgment was poor in many ways and I am reflecting deeply on that."

Son admitted that he should have paid closer attention to WeWork's record of corporate governance under co-founder Adam Neumann. This factor helped to scupper the IPO in September, alongside scepticism about the company's path to profitability.

The failure of the planned stock market listing led to SoftBank last month putting together a bail-out package for WeWork worth $9.5 billion. This isn't shown in the results today and may yet have an impact on earnings.

However, SoftBank has written down the value of its Vision Fund's investment in WeWork by as much as $4.7 billion. Other investments in the Vision Fund have also suffered, most notably Uber (NYSE:UBER) after the ride-sharing app's disappointing Wall Street debut.

These bets on tech plays resulted in an operating loss of $8.9 billion from the Vision Fund in the July to September quarter, with the SoftBank group as a whole posting a deficit of $6.5 billion.

The Vision Fund was set up in 2017 with the aim of making large-scale investments in high-growth tech unicorns boasting valuations of over $1 billion. Son remains confident that WeWork will be a success, reportedly saying he expects a "hockey stick" like recovery in its profits.

Other parts of the SoftBank group are more robust, although Arm's half-year net sales decreased 3.4% year-on-year due to ongoing weakness in the semiconductor industry amid pressure on both royalty and licensing revenues. This has been offset by progress in the licensing of new technologies.

SoftBank's portfolio also includes mobile phone business Brightstar and US-based communications operator Sprint, which it acquired three years ago.

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