The radical view even believes that if the thunder like WeWork happens again and again, the Softbank Empire will collapse.
Editor’s note: This article is from WeChat public account “One point” (ID: TMT08181003 ), author Yulasa, planning editor Lu Yu, article proofread Cyndia. This article was first published in Tencent, and was released.
Centering
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Softbank has just experienced the worst quarterly financial performance since its inception in 1981, primarily because WeWork and Uber’s valuation/market value has shrunk.
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Investors and the public opinion community have begun to question the investment model of the Vision Fund for the huge valuation of start-ups, but Sun Zhengyi stressed that his strategy of reinvestment will not be shaken.
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After the WeWork storm, the Softbank Empire can still remain unsettled, but who knows that Sun Justice can still afford a few WeWorks?
Sun Zhengyi once appreciated Adam Neumann, but in the recent period, it was Adam Neumann’s company that made Sun Justice’s head burned. The shared office WeWork has fallen by 80% in the past two months, which has caused its main investor, Softbank, to suffer the largest quarterly operating deficit since its establishment.
*Sun Zheng admitted that he overestimated WeWork and Adam Neumann at a recent conference
01 The hardest quarter in Softbank history
The Softbank Group released its mid-week 2020 fiscal year (2019/4-2020/3), indicating that the group is experiencing the worst period in the company’s history.
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In the April-September period, Softbank Group saw 15.5 billion yen (about 1.4The operating deficit of US$100 million is the first time the Softbank Group has experienced a deficit in the mid-year report in the past 15 years.
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Among them, the July-September Vision Fund business has a business deficit of 970.2 billion yen (about 8.9 billion US dollars), which is the first quarter of the Vision Fund’s deficit since its establishment in 2017.
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This resulted in a total operating deficit of 704.4 billion yen (approximately $6.4 billion) for the Softbank Group from July to September, the worst quarter for Softbank since its inception in 1981.
The black-and-white record that Softbank Group has maintained in the past has been broken. The business loss from July to September reached 704.4 billion yen, or about 6.4 billion US dollars (chart source: foreign media)
The Softbank Group mentioned in its corporate statement that the primary cause of the operating income deficit was the decline in WeWork’s valuation of the Vision Fund’s heavyweight investment target and the depreciation of Uber’s market fair value.
WeWork’s valuation before the IPO once reached $48 billion, but the prospectus published on August 15 this year exposed the company’s huge losses. Investors questioned the profitability of the shared-asset model, the asset-based model. Negative attitudes have allowed WeWork’s valuation to fall by more than 80% in just over a month, currently only about $7.5 billion.
The house leaks coincided with the night rain. Uber’s valuation was as high as 120 billion US dollars. However, after the listing in May, the stock price went down one after another. The current market value is less than 50 billion US dollars. Its stock price of 27 US dollars, has been lower than the Vision Fund’s shareholding cost of 36 US dollars, which caused the Vision Fund to appear on the books.
In addition to the loss of WeWork IPO, star companies investing in Vision Funds such as uber, slack and Guardant Health also experienced a sharp drop in stock prices in the most recent quarter (chart source: foreign media)
In comparison with the temporary impairment, the longer-term impact is the investor and theThe world is questioning the investment model of the Vision Fund.
Keith Rabois, a senior investor in Silicon Valley, believes that it is not a wise investment to constantly send money to a business model with a persistent deficit.
Japanese Internet tycoon Han Jianggui (founder and former president of LiveDoor) criticized the Vision Fund as essentially “drums and flowers”, raising the valuation of start-ups without a bottom line through huge investments, and then listing IPOs to “cut the leeks”.
Wall Street Media said that Sun Justice should slow down his footsteps, and the Vision Fund will give huge amounts of investment to start-ups in a short period of time, which makes the valuation of start-ups forced to rise, and this estimate The value is not currently recognized by the secondary market.
Some more radical views even suggest that if the thunder like WeWork happens again and again in the future, Sun’s Softbank Empire will be destroyed.
*The Japanese public opinion community even began to discuss the possibility of Softbank failing in the future due to investment failure
However, Sun Zhengyi hopes that the market will see WeWork’s thunder as a small episode, and his investment strategy will not stop. At the press conference in November, Sun Zhengyi admitted that he had misjudged the investment in WeWork, but he still said that he would continue to launch the “Vision Fund Phase II” with a scale of 100 billion US dollars. Sun Zheng stressed that our vision and strategy of “making the world through the information revolution” will not change because of this incident.
02 Investment-based development strategy has become the DNA of Softbank
The strategy that Sun Zhengyi refers to is the DNA of Softbank now, the underlying logic of the Vision Fund “group strategy” – by investing in the head enterprises of new fields, forming an alliance of outstanding enterprises, guaranteeing each in history There are high-speed growth points in the stage alliance organization to continue the entire organization, which is the life of the Softbank Group.
*Sun Justice intends to build a company that can continue to grow for 300 years through the “group strategy”
Sun’s ambition is to hope that Softbank will achieve 300 years of continuous growth through the “group strategy”.
The last century, Softbank still give people the impression of a Japanese broadband and mobile operators, but like previous article “The undercurrent, who will replace Sunsoft’s Softbank Empire?” “ the article As stated, the company is gradually becoming a reinvested international company.
The turning point of this change In 2010, the 30th anniversary of the establishment of Softbank Group, Sun Zhengyi set a difficult OKR for himself: to design a “DNA” that the group can continue for 300 years in its lifetime.
Sun Zheng believes that the communications and IT industries in which Softbank is located have two characteristics: extremely fast (Moore’s Law) and unpredictability (singularity theory) for the future. A company in this field has closed down or been acquired within 30 years after its founding. The probability is 99.98%, which makes the idea of a company to continue to grow for 300 years sounds crazy, so he decided to fight against the historical law by establishing a cluster of enterprises.
*Group strategy with artificial intelligence as the connection point is Softbank’s current core strategy (Source: Softbank official material)
According to the concept of Sun Zhengyi, Softbank Group will grow into a network of 5,000 companies in the next 30 years. The Vision Fund is his tool to achieve this goal. A few years later, Softbank, as a correspondent, may be in a weak position, but the Vision Funds will bring Sunsoft’s next pillar business to Sun Justice, possibly sharing the economy, artificial intelligence and even biotechnology. It can be said that the investment-based “group strategy” has become the DNA of Softbank, and Sun Zhengyi has bet on Softbank’s 30 or even 300 years in the future.
As a result, the question of “Sun Justice will slow down the pace of investment” will be solved.
First of all, Sun Justice may slow the pace of investment expansion, but “will not stop.”
At the mid-term softbank financial report briefing, Sun Zhengyi used the words “the overall situation is stable” (the general trend is abnormal) to respond to outside doubts, and also expressed that he will adhere to the “Vision Fund Phase II” plan. Because the hard-core model of “technology, capital plus monopoly” still has strong appeal, although the application tactics still need improvement, the rationality of the underlying logic of this model cannot be denied. In addition, the Internet+ and other industries invested by Sun Zhengyi have great potential in the future. It seems that Sun Zhengyi will not stop investing.
After the *WeWork storm, Sun Zhengyi believes that Softbank is not shocked at the moment
Moreover, Sun Zhengyi also “can’t” stop the pace of investment expansion.
After the WeWork event, Softbank should choose to drive down its internal investment amount in a short period of time to reduce the risk of investment. Therefore, in order to maintain the normal operation of the Vision Fund, Sun Zhengyi is eager to issue another $100 billion Vision Fund to attract head players who are willing to change the world with him and share the risks with him. But as the Wall Street Journal commented, the ultimate question facing Softbank is whether head players are interested in continuing to follow the Vision Fund project in the short term. Once the market confidence is difficult to recover, such a decision may bring greater risks to Softbank.
03 Investing in WeWork will make SofIs tbank sluggish?
So without the change of the underlying strategic logic, a similar mine like WeWork will make the Softbank Group suffer. The first thing to know is that Softbank’s current finances are not as shocking at first glance.
The high valuation risks exposed by WeWork’s listing failure have scared off investors. The soft-bank vision’s “floating losses” in the investment market made Softbank’s mid-term transcripts very ugly.
However, from the financial report, Softbank’s business performance in its parent communication business (including Japan’s domestic communications business Softbank, US Spring, ARM chips, etc.) business performance is still relatively stable. Excluding the Vision Fund component of the financial statements, the operating income was black and maintained at a stable operating income level of 265.9 billion yen (about 2.4 billion US dollars).
From this point of view, in the stage when the market sentiment has not stabilized, the outside world is questioning whether it is possible to label Softbank with the “lack of vibration” label, which is still to be discussed.
The above data is from the Softbank Group Interim Financial Report. Among them, A is the operating income after the investment of the Vision Fund and the Delta Fund, which is black for 265.9 billion yen (about 2.4 billion US dollars). B is the operating income of the Vision Fund and the Delta Fund, which directly lost 970.2 billion yen (about 8.9 billion US dollars). This also directly led to the first time that C’s operating income had a deficit of 704.4 billion yen (about 6.4 billion US dollars).
However, can Softbank be able to afford a few “WeWorks”?
According to IFRS (International Accounting Standards) Document 9, a portion of the investment amount of the Softbank Group in the Vision Fund is directly included in the operating profit of the Softbank Group’s financial report as a transactional financial asset. At WeWork, the energy source continues to hold “cash” to buy land to buy a building, and there is no problem for the high-valued vision fund under the Sun Zheng Investment Plan to expand the territory, and it will make the market volume of Softbank It looks taller and more powerful.
When such growth proves to be unsustainable, the secondary market no longer accepts the high valuations given by Softbank, and such a large market mass is immediately identified as dangerous and should be fleeing. WeWork’s thunder, which directly compensates Sun Zhengyi and its leading Softbank Vision Fund, is close to $9 billion, which proves that the valuation of the investment market has a great impact on the financial status of Softbank Group.
The above data is from the Softbank Group Interim Financial Report, which details the impact of Wework’s investment failure on Softbank’s finances. It also explains the corresponding investment accounts of Softbank Group for the amount of WeWork investment. It can be seen that the investment losses to WeWork are directly included in financial instruments and operating income.
As we all know, in order to firmly hold the controlling stake in Softbank, Softbank Group, led by Sun Zhengyi, has always insisted on bond financing. Through the analysis of the financial report data of Softbank Group in recent years, we can also find that the asset-liability ratio of Softbank Group has remained at around 70%~80%, and Sun Yizheng’s “White Moonlight”-Google’s 30% asset-liability ratio is completely unacceptable. compared to.
After careful reading, interest-bearing debt accounts for about 60% of total liabilities, and mobile interest-bearing debts increase year by year. As of September, it is about 17 trillion yen (about 155.6 billion US dollars). Sun Zhengyi once publicly said: “The value of the stock held by Softbank Group is as high as 26 trillion yen (about 238 billion US dollars). According to this statement, if the value of the stock held by Softbank Group continues to fall by more than 35%, When the stock market value is less than the flow of interest-bearing debt, the old way of selling stocks will not work. The heavy interest cost will bring great repayment risk to Softbank Group.
(Unit: million yen)
The above data is from the financial data of Softbank Group, which is organized by One Point (ID: TMT08181003). From left to right are interest-bearing debts, assets, debt, cash and their cash equivalents. Among them, interest-bearing debt is divided into liquid interest-bearing debt and non-liquid interest-bearing debt, mainly consisting of liquidity interest-bearing debt, accounting for about 80%. The leverage ratio of liquid interest-bearing debt and cash and cash equivalent assets is 4 to 5 times.
According to Sun Zheng’s current style of play, the valuations and responses given by the market are extremely important for the future development of Softbank. It seems that it has not been forgotten by Sun Zhengyi and Softbank Group. After all, WeWork went to the US in August.Before the SFC submitted the prospectus to “remove makeup”, the market helped Softbank reach its record high of 1.12 trillion yen in the first quarter.
Imagine Sun’s justice is very clear, in the capital market, riding the wind and dreaming on the waves, the water can also carry the boat.