SoftBank founder admits mistakes with WeWork investment

Japanese technology company SoftBank Group lost more than $6 billion last quarter as its earnings were hammered by money-losing investments, including a bailout for office-space sharing startup WeWork.

SoftBank founder Masayoshi Son expressed regret for "mistaken investment moves," while saying the situation at WeWork is under control and that he expects to turn it around. Despite the decline in WeWork's valuation, he said the company "is not [a] sinking boat" and that the office-sharing company will improve its performance over time.

Last month Softbank said it would spend $3 billion to buy WeWork shares from employees and other investors, as well as invest another $1.5 billion directly in the company and lend WeWork another $5 billion. Together, the deal values WeWork at $8 billion, or 83% lower than the $47 billion it was believed to be worth at year-start.

"My judgment in investment was not right in many ways," Son said in a conference call to discuss the SoftBank's financial results. "So I regret in many ways."

The Tokyo-based investment company's 700 billion yen ($6.4 billion) loss in the July-September quarter compares with a 526 billion yen profit the same period a year ago.

$4.6 billion lost in 90 days

SoftBank said Wednesday that it expects a special loss on the value of its shares of subsidiaries and associates of nearly 498 billion yen ($4.6 billion) for its non-consolidated financial statement for the fiscal year ending in March 2020.

Last month, SoftBank announced a bailout for WeWork, including $5 billion in new financing, a tender offer of up to $3 billion for existing WeWork shareholders and an acceleration of an earlier promise of $1.5 billion in funding.

Although startups always carry risk, SoftBank's relatively diverse portfolio had until recently helped offset any money-losing investments. Son's famed charisma and global perspective have also worked in SoftBank's favor.

But questionable corporate governance practices at WeWork have landed SoftBank in a crisis, he acknowledged at its earnings news conference. Various negative media reports about WeWork were "true in some sense," Son said.

"The perception is that SoftBank is being dragged down into the quagmire of WeWork," he said. "I am looking back with true regret about the mistaken investment moves that I have made."

Vision Fund losses

SoftBank's investment fund called Vision Fund sank into losses, but Son said that overall, its investors are still reaping profits from their total investments and the Vision Fund's value for shareholders has not fallen despite the latest losses thanks to stock price gains of other holdings.

Apart from WeWork, SoftBank invests in an array of technology-driven companies, including Chinese e-commerce conglomerate Alibaba; car-sharing companies Uber, Didi and Grab; internet company Yahoo and the internet of things, or IoT, Britain-based company Arm.

Son pointed out that while Uber's share price has fallen recently, it has risen since SoftBank invested in it.

Son promised a turnaround at WeWork. He said he has sent in SoftBank Chief Operating Office Marcelo Claure, who oversaw the merger at Sprint, to lead WeWork and beef up its corporate governance. Adam Neumann, a co-founder of WeWork, stepped down as chief executive in September.

Design costs

In a presentation, Son said WeWork was losing money from initial construction and design costs but, with time, its properties will become profitable.

Asked why WeWork was viewed as a technology investment when it's actually a real estate company, Son pointed to internet technology used by the company, which focuses on offering office space to startups.

It's common for new companies to start out with losses, including those considered successes today, such as Amazon and Facebook, he said.

SoftBank says it has ample cash to handle WeWork's woes. "There is no storm, and things are under control," Son said.

In a bit of good news, SoftBank has won long-sought U.S. regulatory approval from the Federal Communications Commission for U.S. carrier Sprint's merger with T-Mobile. SoftBank owns a majority stake in Sprint. The merger was delayed by anti-trust concerns and other problems, including several lawsuits, but the FCC approval clears that last hurdle.

SoftBank's quarterly sales slipped 3% to 2.32 trillion yen ($21 billion) from 2.38 trillion yen the same period the previous year.

SoftBank stock, which has dropped in value in recent months, finished 0.7% higher on Wednesday, at 4,322 yen ($40).