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Mark Yu
Mark Yu
Articles (412)  | Author's Website |

Tik-Tok Tik-Tok: SoftBank Vision Fund

Hail Mary investments on massively overvalued startups make SoftBank Vision Fund vulnerable to souring investor sentiment

September 08, 2019 | About:

Having formed a 300-year vision, projected what will be soaring within 30 years, envisioned that humans will communicate telepathically, successfully raised $64 billion for its first $100 billion Vision Fund and hoped to raise another $70 billion on its second Vision Fund, SoftBank Corp. (TSE:SFTBY) CEO Masayoshi Son is definitely an ultimate visionary who puts his and others' money on tech startups that aim to make the future better for everyone. Meanwhile, investment returns do not seem to reflect the same enthusiasm three years into his Vision Fund.

Via the Vision Fund, the $90 billion Japanese telecommunications company has multi-billion dollar investments in wide-array of forward-looking tech startups. From its $32 billion investment in ARM, a smartphone chip designer, and $22 billion investment in Sprint (NYSE:S), down to hundreds of millions invested in several food delivery platforms around the world—including a company that makes robot-powered pizza delivery —SoftBank has deep exposure in what could be an automated future for the world’s citizens.

So far, SoftBank’s investments in the following selected few have yet to generate satisfying returns.

SoftBank’s 15% stake in Uber (NYSE:UBER) has yielded more than $600 million unrealized losses, We Company, where SoftBank has a 29% stake valued at $10.5 billion, has recently slashed its valuation to half — from $47 billion to somewhere in the $20 billion range—losing roughly $27 billion of its valuation overnight. Even the telecom giant’s investment in Sprint (NYSE:S) yielded a total return of -3.54% since SoftBank won the US Federal Communications Commission approval of a share swap deal with Sprint back in 2013.

Souring investor sentiment in the high-growth and money-losing companies has pushed some of SoftBank’s investments in the negative territory. Uber has dropped 32% from its high at its initial public offering, while debutant Slack (NYSE:WORK) has lost a third of its valuation from its IPO high. SoftBank has invested a quarter of a billion dollars in Slack.

The companies mentioned above have climbing losses in recent years. Uber has lost $6 billion in the last six months, Sprint has lost $2.2 billion in the same period, and We Company reported in its S-1 filing a net loss of $900 million for its operations in the past six months. Slack reported a $390 million loss in the same period.

Nonetheless, SoftBank remains optimistic about its investments. Per its recent filing, the company that derived nearly half of its income from its telecommunications business held 81 total investments at $66 billion in costs with an estimated $82 billion fair value—a $16 billion difference or 24% possible return. Bloomberg indicated that SoftBank reportedly earned 62% returns in its first Vision Fund back in June.

Should the 24% return be accurate, SoftBank has far further to go in order to meet its promised 44% returns to the Kuwait Investment Authority for the latter’s investment.

Meanwhile, Masayoshi Son’s thirst for funding future-looking companies seems unquenchable. The visionary aims to raise a new massive fund every two or three years.

The remarkable $27 billion drop in We Company's private valuation just shows that even SoftBank itself may have overvalued the workplace leasing company in prior fundraising periods.It should also be interesting to see if the investing public will widely accept the private valuations of the unicorns SoftBank has so far invested in. In the meantime, Mr. Market seems to be a little less excited about the ones that have gone public.

Disclosure: No shares in any of the companies mentioned.

About the author:

Mark Yu
I'm a doctor in physical therapy (DPT) with a passion for finance. Not a registered financial analyst. Value seeker. Long only. Global investing. Long-term investing.

I attempt to dissect one company filing every day. I dislike goodwill and intangible assets.

One company (review) a day keeps the speculation (hopefully) away.

"The only source of knowledge is experience."

"I have no special talent. I am only passionately curious." - Albert Einstein

"To strive, to seek, to find, and not to yield." - Alfred, Lord Tennyson

"We find one a year, that's terrific. You do not need a hundred or a thousand great investment ideas to do well. You need a couple. And, the discipline is the most important thing." - Warren Buffett

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