SoftBank Chief Executive Masayoshi Son attends a news conference in Tokyo, Japan, on Nov. 5, 2018.Kim Kyung Hoon/Reuters
Masayoshi Son makes big bets. Over nearly four decades, the chief executive of SoftBank Group of Japan has spent vast amounts of money to build an investment empire that spans countries and industries and that has increasingly shaken up the technology world.
On Wednesday, Son, 62, defended that legacy in the face of his biggest setback in years. SoftBank reported that it took a nearly $4.6 billion hit from its investment in WeWork, the troubled office-space company that has come to symbolize the excesses of startup culture.
“In the case of WeWork, I made a mistake,” he told investors at a news conference in Tokyo. “I won’t make any excuses. It was a very harsh lesson.”
Still, he vowed to press on with his grand plan to make major bets on ambitious companies and their founders, hoping to find visionaries whose companies will go on to dominate entire industries.
“From my perspective, there is no change in our journey,” he said. “No change in our vision. No strategic change. All we will do is to just keep going, keep moving forward.”
SoftBank Group is the world’s largest tech investor, and it has used its $100 billion Vision Fund — backed with SoftBank’s own money as well as major stakes from Saudi Arabia’s Public Investment Fund and others — to become a kingmaker in the space.
But the company and Son have come under increasing pressure to rein in their stable of potential unicorns — startups worth $1 billion or more — after the spectacular implosion of WeWork’s plans for an initial public offering in late September.
On Wednesday, SoftBank said its profit for the six months that ended in September totaled 421 billion yen, or nearly $3.9 billion, about half the level of the same period a year ago. The figures imply that SoftBank lost more than $6.4 billion in the most recent three-month period.
SoftBank cited the nearly $4.6 billion write-down in the value of its investment in WeWork, plus write-downs in other investments, including in Uber, the U.S. ride-hailing company.
SoftBank also owns Yahoo Japan, chip design firm ARM, and phone carrier Sprint in the United States.
But WeWork’s fall had the biggest effect on the Japanese company’s results. WeWork’s $47 billion valuation plummeted virtually overnight after its effort to sell shares to the public revealed deep governance issues, including questionable financial arrangements involving the company’s founder and former leader, Adam Neumann. He was criticized for leasing buildings he partly owned back to the company and charging it almost $6 million for its use of the word “We,” which he attempted to trademark.
SoftBank now values WeWork at $7.8 billion. Neumann resigned as the company’s chief executive at the end of September.
SoftBank Group bet big on Neumann’s vision even as cracks began to appear. While its partners in Vision Fund balked at throwing more money at the loss-making WeWork, Son’s company continued pouring funds into the venture, eventually investing $10.5 billion in the tech firm ahead of its planned offering.
The meltdown forced SoftBank Group to pump an additional $9.5 billion into the company, leaving it with an 80% stake but no majority voting rights. Neumann walked away with a payout of more than $1 billion.
In his remarks, Son shook off criticism of his investment in WeWork, which has become a symbol of his overall strategy of feeding potential unicorns with enormous quantities of cash so they can quickly grow large enough to overwhelm their competitors.
Over more than 40 minutes, he defended his investment in the company, praised the quality of its product and insisted that SoftBank’s bailout of the company was “not a rescue.”
Rather, he said, it was an opportunity to buy up extra shares in the company at a discount, reducing the average cost of SoftBank’s stake by a quarter.
“We may not be able to make a big gain, but at least we may be able to get back our investment,” he said.
The biggest mistake he had made was misjudging Neumann, Son said.
“I overestimated Adam’s good side,” he said, adding that as for “his negative side, in many cases, I turned a blind eye, especially when it comes to governance.”
The WeWork fiasco has increased scrutiny of Son’s role in shaping the Vision Fund’s investment portfolio. The notoriously exuberant founder is famous for making snap decisions about companies based on intuition as much as overall strategy.
The missteps at WeWork have shaken investors’ confidence in Son, according to Mitsunobu Tsuruo, an analyst at Citigroup Global Markets Japan.
“He’s supposed to be a good judge for picking winning entrepreneurs” but that was not the case with Neumann, he said, adding that Son would need to convince his shareholders that their interests would not be compromised by SoftBank’s exposure to WeWork.
In some cases, Son’s bets have paid off spectacularly. An early gamble on Alibaba, the Chinese e-commerce company, grew to more than $100 billion. But other investments have not fared as well. Large stakes in Uber and Slack have begun to look more nearsighted than visionary as the companies’ share prices have fallen in the months following their public offerings.