WeWork and Uber drag SoftBank Group into historic negative territory

Earnings before interest and taxes collapses from ¥1.42 trillion to a ¥15.6 billion loss.

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Image: SoftBank

Japanese giant SoftBank Group has seen its earnings dragged into the worst quarter ever for the company, off the back of a cut in the valuations of its investments in Uber and WeWork, and its financial package for WeWork following its scrapped IPO last month.

During the first half for SoftBank Group, net sales was steady at ¥4.65 trillion, while earnings before interest and taxes collapsed by ¥1.44 trillion to post a ¥15.6 billion loss.

"Operating loss from SoftBank Vision Fund and Delta Fund was ¥572.6 billion; reflecting unrealized valuation loss (net) of ¥537.9 billion from investments held at the second quarter-end due to a decrease in the fair values of investments including Uber and WeWork and its three affiliates," SoftBank said in its results.

Speaking in Tokyo on Wednesday, SoftBank Group founder and CEO Masayoshi Son said he turned a blind eye towards the governance of WeWork.

"Earnings result is not good at all. A big negative," Son said through an interpreter.

"That's my judgement in investment, was not right in many ways, so I regret [it] in many ways."

Under the financial package between SoftBank and WeWork, made up of a combination of shares and credit, the Japanese giant will end up controlling up to 80% of the shares in the end, but without majority voting rights nor control of the board. At the same time, the prior $47 billion valuation of WeWork by SoftBank has been cut by one-tenth, while the total investment by SoftBank entities in WeWork now tops $10 billion.

WeWork will pause almost all construction for up to 4 years, Son said, until the company is able to have "stable operations and profitability". The SoftBank founder added his company was "not rescuing WeWork".

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Image: SoftBank

Son maintained that although the company posted an eye-watering loss, it had increased shareholder value by ¥1.4 trillion.

After the disappointing IPOs of Uber and Slack, on top of the aborted WeWork attempt, Son said it was now more cautious about rushing to IPO, but noted companies under the SoftBank Vision Fund umbrella would continue to become public.

Broken down by company segment, SoftBank's telcos in Japan now have a cumulative 23 million subscriptions, as well as 6.16 million customers using fibre-based fixed broadband. Sales for the telco businesses were up 6.5% for the first half to ¥2.37 trillion and income was up 7% to ¥561 billion. As of June 27, the former Yahoo Japan is now a subsidiary of SoftBank Corporation.

For its US telco, Sprint, its sales were down 3.8% to $16 billion, and income was also down 47% to $939 million. On Tuesday, the company received FCC approval for its $26 billion merger with T-Mobile. Following the closure of the transaction, SoftBank will hold a 27.4% stake in the new company.

The global slowdown in the semiconductor industry was fingered as leading to a decrease in earnings for its Arm chip design unit. Overall, Arm revenue was down 2.7% to $814 million with technology licensing, and software and services revenue increasing by 1.4% and 32%, respectively, while royalties revenue was down 9.5%.

For the first quarter of the year, SoftBank Group posted a 32% increase in revenue to ¥1.16 trillion and a 22% increase in operating income to ¥269 billion.

In July, Apple, Microsoft, and Foxconn signed up to contribute towards the $108 billion SoftBank Vision Fund 2, that would once again focus on investing in artificial intelligence unicorns.

Under questioning from journalists on Wednesday, Son justified the categorisation and investment in WeWork due its offering of office space to AI companies, as well as previously having plans for AI that it no longer plans to pursue.

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