By Phred Dvorak
TOKYO -- Technology giant SoftBank Group Corp. recorded the worst results in its nearly four-decade history, as huge losses at its $100 billion Vision Fund and other investments threw into question its aggressive strategy of funding digitally driven startups.
SoftBank also said Alibaba Group Holding Ltd. co-founder Jack Ma -- whose company has been the biggest investment success story for SoftBank Chief Executive Masayoshi Son -- would step down from SoftBank's board after 13 years. SoftBank has slowly been paring its Alibaba stake and disclosed further steps in that direction Monday.
The Japanese conglomerate said the Vision Fund recorded an investment loss of nearly $17 billion in the fiscal year ended in March, including more than $10 billion during the January-March quarter, as the coronavirus pandemic pummeled the valuation of companies in its portfolio. That left SoftBank itself with a $9 billion net loss for the year.
The Vision Fund, the world's biggest tech investment fund, is now underwater, with little chance of a recovery in the near future, Mr. Son said during a grim earnings presentation in Tokyo, filled with black-framed charts comparing the current crash to the Great Depression, and conducted online to prevent spread of the pathogen. The fund has lost around $800 million on the roughly $81 billion in investments it has made, leaving returns at minus 1%, Mr. Son said.
As of the end of March, the value of the Vision Fund's present assets was $5.4 billion below what they cost to acquire. The fund's overall losses over its history are smaller because it locked in gains on some assets it sold.
Many of the Vision Fund's portfolio companies -- such as U.S. ride-hailing giant Uber Technologies Inc. and Indian hotelier Oyo Hotels & Homes -- are struggling with lost business as the coronavirus downturn hits their operations, Mr. Son said, over an illustration showing unicorns pitching headlong into a pit labeled Valley of Coronavirus. The fund is more likely to see further paper losses in the next year than paper gains, he said.
Hours after SoftBank's earnings announcement, Uber announced a new round of layoffs that would cut its staff by one-quarter. Most of the fund's investments were losing money before the downturn, putting them in tenuous positions as the economy tumbled.
SoftBank cut the estimated value of shared-office company WeWork to $2.9 billion as of March 31, less than one-tenth of its peak valuation and less than half of what SoftBank said it was worth just three months ago.
Mr. Son said SoftBank was continuing to invest cautiously in new companies through a new fund called Vision Fund 2, but he said he has given up -- at least for now -- on the idea of trying to get money from outside investors. "Sometimes I get asked if the funding for Vision Fund 2 is OK," said Mr. Son. "It's not."
Yet SoftBank is still in a less dire position than it was following the crash of the internet bubble at the end of 2000 or after the collapse of brokerage Lehman Brothers in 2008 kicked off the financial crisis, Mr. Son said.
"Compared to those times, when it seemed we were going to fall off a cliff, and were hanging on by two fingers or one arm; we're now just peering over the edge," said Mr. Son.
That is because SoftBank still has huge holdings of valuable assets -- $266 billion worth as of Monday, Mr. Son said. That includes a $137 billion stake in Alibaba, a nearly $30 billion stake in U.S. mobile carrier T-Mobile US Inc., which last month closed its deal to buy Sprint Corp. from SoftBank, and a $42 billion stake in SoftBank Corp., SoftBank's Japanese mobile-phone unit.
Those are some of assets that SoftBank can now milk for a $41 billion program to buy back shares and bolster its finances that was announced in March. SoftBank is in talks to sell a chunk of its nearly 25% stake in U.S. mobile carrier T-Mobile US Inc. to controlling shareholder Deutsche Telekom AG, The Wall Street Journal reported. The size of the stake is still being discussed and would likely be significant, giving Deutsche Telekom a more than 50% stake in the company, up from its current 44%, the Journal reported.
SoftBank said it entered into derivative transactions in April and May to sell $11.5 billion worth of Alibaba shares. Mr. Son also said he was weighing whether to hold off paying a dividend this year.
But the further paring down of SoftBank's Alibaba stake, as well as the departure of Mr. Ma from SoftBank's board, mark a turning point in a relationship that dates to the 1990s. Mr. Son famously says he decided to invest $20 million in Alibaba in 2000 after a five-minute chat with Mr. Ma, in which he was won over by the sparkle in Mr. Ma's eyes. Mr. Son spent another five minutes convincing Mr. Ma to take the money, the pair recalled during a joint appearance in Tokyo last year.
In subsequent years, the pair led their companies in numerous co-investments, including into Alibaba's wildly successful online bazaar, Taobao, which started in 2003 as a joint venture with SoftBank. Mr. Ma brought Mr. Son onto Alibaba's board in 2005, a position he still holds. Mr. Son reciprocated in 2007, bringing Mr. Ma to SoftBank's board and telling investors on a conference call that he viewed the relationship between SoftBank and Alibaba to be that of a parent and child.
The relationship switched in 2014, when Alibaba had the world's biggest initial public offering, propelling it well past SoftBank in terms of market capitalization and making it the biggest source of wealth for the Japanese company. SoftBank has already sold billions of dollars of Alibaba stock to help fund its purchase of U.K. semiconductor designer Arm, and has pledged billions more as collateral for loans.
At last year's appearance in Tokyo, Mr. Ma described Mr. Son as having "the biggest guts in the world" for his aggressive investing. But he also warned that "when you have too much money you make mistakes."
Alibaba declined to make Mr. Ma available to comment.
SoftBank's moves to shore up its finances will constrain Mr. Son's ability to throw billions of dollars at new tech companies for now. He said he still hoped a handful of breakout winners would lead the Vision Fund to 20% returns in five or 10 years but called it an optimistic scenario and suggested that if investors wanted to be cautious they would value SoftBank's holdings in the Vision Fund at zero.
Write to Phred Dvorak at email@example.com