Interesting read. For someone who has the time and patience to gather data against the author's arguments, I would highly recommend going to the source of the data. SoftBank's financials - FY 2018-19[1]. I had a quick skim at the segments of the company and they have some interesting sources of revenue/profit which could provide some cushion: ARM, SoftBank itself (telecom), Sprint!, Yahoo Japan.
Can someone more experienced than I am on financial matters check if they're in deep shit as the article suggests?
> Can someone more experienced than I am on financial matters check if they're in deep shit as the article suggests?
I'm no financial expert but "¥15.7tn ($143bn) of interest-bearing debt" is a lot of money, in case shit will end up hitting the proverbial fan (meaning a recession that will make refinancing a lot harder) then I don't see an easy way out for them. I also don't know what "¥27tn of total liabilities" really stands for, but that doesn't sound good either.
Adding those two numbers up gives you about $300 billion that is owed by SoftBank in one way or another (debt + liabilities), that is a lot of money that cannot easily be covered by SoftBank's current assets in case they'll become hungry for liquidity. And I don't think the biggest part of that sum has a long maturity (think 10, 20 even 30 years), probably most of it it's due in the next few years (even though I may be wrong on this one, I admit).
I didn't see it mentioned in the article but I think it's an important factor: The massive intervention by the BoJ in the corporate bond market of Japan. The BoJ is even buying bonds with negative yield. There's just so much Yen printed by the BoJ it's no surprise that some of it ends up in a venture capital fund, driving up valuations of startups around the globe. After all this is what everyone is warning about: Zero or even negative interest rates will distort valuations and capital allocation.
BoJ's money printing is dwarfed by Fed's and ECB's money printing. Japan has been doing it since 1989, Softbank cant be explained by Japan alone.
> Zero or even negative interest rates will distort valuations and capital allocation.
interest rates policy ( monetary ) has little to do with capital efficiency.
Central banks have rightly figured out a few things :
- Their respective countries have taken on too much debt, and we need to do something to reduce it.
- Market forces ( globalization + technology ) are having tremendous deflationary effects that is pushing down interest rates, their job is to find out that number.
But that's the intent of rates that low, to try cause more activity for economic exploration to create or expand capabilities of businesses. The inflation only really becomes a concern if there is "too much" activity that yields too little lasting value creation. With too much being in quotes because that determination is a vastly complex and non-deterministic judgement call.
Softbank kind of reminds me of the Icelandic banks in the last bubble, in that in both cases I was wondering how they managed to get all the money they had.
Just before it all went off that time, these icelandic banks were buying up everything in sight, and I was thinking "where are these banks from a small country getting this kind of money"
Softbank seems similar, in that the scale of its funds is absolutely massive for a single company (vision fund one at $100b and suggestions of a second $100b vision fund in the offing). If there's a lot of fancy debt going on, it's the kind of that seems like it could blow up in spectacular fashion (as the icelandic banks did last time)
That and Softbank, at least from my limited visibility seems to throw money at a lot of startup like ventures in terms of the risk reward.
Maybe overall they're far more grounded than I see but I swear I only hear about them publicly when they're taking some risky chances that most probabbly won't pay off...
If they're borrowing I wonder who goes down with them?
There's a chart that says "Morgan Stanley caught red handed with a massive short book" - but isn't this exactly what they're supposed to do with the "greenshoe"? I.e., oversell the offering by taking a short position themselves, then buy it back later to move up the price?
> "SoftBank routinely selling assets to its Vision fund."
Can anyone help me understand the real reason Softbank does this and whether investors of VF are okay with it? One case I know of is Coupang [1], a Korean E-commerce company, recently "priced" by VF at $9B. Last year, Softbank sold its 20% shares in Coupang to VF at a 30% loss (down-valuation) and then VF poured in an additional $2B to Coupang. It appears Masa did double down on Coupang but why bother to sell its long position at a loss? Not a domain expert on this, so I wonder what is really going on...
I am curious if there are any counter-views published out there. Softbank is undeniably big and heavily invested in the VC basket. Is there public analysis on how well the larger entity is protected to down-valuation of their portfolio of startups?
>How SoftBank got here is a story as old as man itself.
You see, thanks to QE, pushing investors out the risk curve fanned the largest venture capital boom in all of history. Trust me, I know this. I built, then sold a VC firm because I could see what was happening.
I feel he's projecting his own experience setting up and flipping a small VC firm ("Between July 2012 and April 2016 led the investment of $35M into 32 early stage venture...") onto SoftBank.
Problem #1: Uber is already a public company and borrowing against owned stock in the company (as OP says Softbank is doing) isn't newsworthy. Article says $4bn from "Uber and two other SV groups". Even if we assume the entire $4bn is borrowed from Uber holdings, that's only 10% market cap of Uber.
Problem #2: Morgan Stanley shorting Uber for its IPO is more FUD. This is routine in the investment banking world. Underwriter knows they will have to do this to provide liquidity. Haven't seen a popular IPO in the last decade where the underwriter doesn't hedge.
Problem #3: Softbank having a large corporate debt load isn't that big of a deal since interest rates are so low (sometimes negative) in Japan. You're going to PAY me millions to borrow billions? Yes, I'll take that deal every day of the week. SoftBank makes enough in revenue to more than make up for their debt load.
Problem #4: I think everybody and their dog knows Uber, Lyft, WeWork, etc. are all overvalued and will struggle to find a path to profitability in the near term. However, we could still see a 30-50% drop in public valuations on those companies. But they make up a very tiny slicer of the overall venture capital in tech right now. The largest companies are tech and they're making money hand-over-fist. Microsoft is at a trillion dollar valuation but they make $35bn a year in profits and still have $130bn in cash in the bank. It's not systemic risk as in the GFC of 2008.
TLDR: SoftBank is starting to unwind their positions and you may see a dip in the valuations for Uber, Lyft, WeWork, Tesla, and other non-profitable tech companies.
When I read things like this, I start to wonder: when wealth inequality is discussed, how is it measured? I recall hearing that Jeff Bezos regularly loses billions due to fluctuations in Amazon stock. How much of the "wealth" in wealth inequality is actually based on paper gains? In other words, it seems that the richer you are, the more exposure you might have to the vagaries of the market. Maybe you are rich enough that you can afford to take that hit, but you will also likely lose more in dollars, I would assume.
one commonly used measure of inequality is the Gini coefficient, which isn't perfect but is great for getting a "big picture" view of things. The increased exposure of the rich to the vicissitudes of valuations doesn't really get accounted for, even in more detailed analyses. I'm guess that's because it would be horribly impractical to measure; you'd have to take a detailed look at the finances of almost everybody.
Semi related to this:
Have there already been noticeable changes in investments in the valley since the last big round of unicorn IPOs?
Since we can assume many VCs got a lot of cash back in a relatively short time I guess they will either double down and reinvest even more in tech/startups - or they will stay out of tech for the foreseeable future.
Or is it too early to tell because new funds would have to be set up first?
I'm not sure about new investments but I'd say that the author of OP's article is onto something here.
Softbank backed Lemonade is about to IPO in 6 months with a 2 billion dollar valuation. Neither their valuation nor an IPO makes sense to anyone in the industry. Lemonade is 99% marketing hype. Both the insurance book and the tech at the company are suspect at best.
The other one that's hit my radar recently is Compass, another Softbank backed company looking to IPO in the next 2 years at a stupid high (I've heard $5b) valuation. But they're cash flow negative with no path to profitability and they're increasing their spend rate instead of lowering it. So why would your average investor buy the stock?
Neither of those are mentioned in the article but it does seem like companies backed by Softbank are behaving pretty strangely.
Yes. One incident and a house of cards comes falling down. Too big to fail is one thing. Setting it up to fail is another. How did we get inflated valuations during the housing bubble. Fraudulent comps.
A large part of the Vision fund is arab money. For Americans, the investment strategy pursued by most of the Middle East can seem counterintuitive, or even stupid. But let me tell you a story.
I worked as a quant at a portfolio analytics firm and had access to the portfolio data of thousands of different funds: hedge funds, fund of funds, endowment funds, and sovereign wealth funds. Many of our clients were in the Middle East, probably due to the founder being Palestinian (I am also half Palestinian if it matters).
These national investment authorities have massive amounts of capital, larger than any hedge fund or endowment. We’re talking about trillions of dollars in a single fund invested all over the Western world.
With that kind of money, you need to pretty much invest in anything and everything. Billions in T-notes, corporate bonds, commodities, equities, whatever.
The amount that needs to be invested is so large that you need to invest in things no sane person with 50m would invest in. This is the purpose of the SoftBank Vision fund: to provide capacity for seemingly infinite Middle Eastern oil money. They desperately need to diversify out of their incredibly volatile oil cash flows.
This pressure results in a glut of arab money into VC and everything, because all they want is to create a true market portfolio. And by market portfolio, I mean allocations into everything: VC, PE, REITs, bonds, equities.
I wonder what the world would be like if (magically) the option for the top x% of people to invest their money globally was no longer available, and they were forced to find something to do with the money domestically. If wealth distribution is such that the masses lack the productivity and therefore income to buy your innovative product, perhaps then these top x% would be motivated to work together to influence society in a manner to increase individual productivity, which they could then make their larger-than-average rate of return on.
>We’re talking about trillions of dollars in a single fund invested all over the Western world.
I find that hard to believe. The Government Pension Fund of Norway is said to be the world’s largest sovereign wealth fund with just over US$1 trillion in assets.
Another one is "the term “corporate governance” is as foreign as that thing that came out of Sigourney Weaver’s stomach." The alien came out of Executive Officer Kane's stomach (John Hurt).
obviously he is comparing the (lack of) transparency or clarity of the company with the (lack of) transparency or clarity of the Ethereum Casper protocol...
> But the real reason it’s as nutty as a AOC’s Green Deal ...
I hit this and immediately stopped reading the article. First, it's the "Green New Deal". Second, it's not solely AOC's work (though she is probably its most prominent proponent). Third, it's not nutty; it's, if anything, a down-payment on the work we need to do to address the climate crisis. Not to mention the rest of the article (up to that point) has nothing to do with the GND, so the author had to go out of their way to make themself look like an idiot.
You don't even need to analyze it that far to discard the article.
It doesn't matter whether we agree with the Green New Deal or not, the author is just outing themself as someone uninterested in looking beyond personal opinion and their political bandwagon.
SoftBank is playing a game that is way above any hedge fund's pay grade, let alone some blogger.
- If SoftBank goes down, every coder loses his/her rice bowl. The pain inflicted on Son, Tim Cook and MBS is minimal, compared to your average tech worker.
- Valuation are not isolated beasts, the nominal value looks high because of the extraordinary financial alchemy that is going on the Fed. Large pool of capitals are betting the Fed is going to continue with QE4, QE5, .... QEn.
Imagine how it feels to be a sovereign wealth fund, watching the Fed print almost a trillion dollars / yearly in good times ! You must be terrified of what happens when the ball stops rolling.
- Owning growth stocks is an amazing way to hedge against many possible future outcome, both good and bad.
[+] [-] vmurthy|6 years ago|reply
Can someone more experienced than I am on financial matters check if they're in deep shit as the article suggests?
[1]https://cdn.group.softbank/en/corp/set/data/irinfo/financial...
Edit: spelling mistakes /facepalm
[+] [-] paganel|6 years ago|reply
I'm no financial expert but "¥15.7tn ($143bn) of interest-bearing debt" is a lot of money, in case shit will end up hitting the proverbial fan (meaning a recession that will make refinancing a lot harder) then I don't see an easy way out for them. I also don't know what "¥27tn of total liabilities" really stands for, but that doesn't sound good either.
Adding those two numbers up gives you about $300 billion that is owed by SoftBank in one way or another (debt + liabilities), that is a lot of money that cannot easily be covered by SoftBank's current assets in case they'll become hungry for liquidity. And I don't think the biggest part of that sum has a long maturity (think 10, 20 even 30 years), probably most of it it's due in the next few years (even though I may be wrong on this one, I admit).
[+] [-] jcfrei|6 years ago|reply
[+] [-] whatok|6 years ago|reply
[+] [-] wrong_variable|6 years ago|reply
> Zero or even negative interest rates will distort valuations and capital allocation.
interest rates policy ( monetary ) has little to do with capital efficiency.
Central banks have rightly figured out a few things :
- Their respective countries have taken on too much debt, and we need to do something to reduce it.
- Market forces ( globalization + technology ) are having tremendous deflationary effects that is pushing down interest rates, their job is to find out that number.
[+] [-] lucianomt|6 years ago|reply
[+] [-] dv_dt|6 years ago|reply
[+] [-] raesene9|6 years ago|reply
Just before it all went off that time, these icelandic banks were buying up everything in sight, and I was thinking "where are these banks from a small country getting this kind of money"
Softbank seems similar, in that the scale of its funds is absolutely massive for a single company (vision fund one at $100b and suggestions of a second $100b vision fund in the offing). If there's a lot of fancy debt going on, it's the kind of that seems like it could blow up in spectacular fashion (as the icelandic banks did last time)
[+] [-] dashundchen|6 years ago|reply
https://www.nytimes.com/2018/11/05/business/softbank-son-sau...
[+] [-] nikanj|6 years ago|reply
[+] [-] duxup|6 years ago|reply
Maybe overall they're far more grounded than I see but I swear I only hear about them publicly when they're taking some risky chances that most probabbly won't pay off...
If they're borrowing I wonder who goes down with them?
[+] [-] human20190310|6 years ago|reply
[+] [-] venantius|6 years ago|reply
[+] [-] dhfromkorea|6 years ago|reply
Can anyone help me understand the real reason Softbank does this and whether investors of VF are okay with it? One case I know of is Coupang [1], a Korean E-commerce company, recently "priced" by VF at $9B. Last year, Softbank sold its 20% shares in Coupang to VF at a 30% loss (down-valuation) and then VF poured in an additional $2B to Coupang. It appears Masa did double down on Coupang but why bother to sell its long position at a loss? Not a domain expert on this, so I wonder what is really going on...
https://www.bloomberg.com/news/articles/2018-11-20/softbank-...
[+] [-] dzdt|6 years ago|reply
[+] [-] chid|6 years ago|reply
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] tim333|6 years ago|reply
I feel he's projecting his own experience setting up and flipping a small VC firm ("Between July 2012 and April 2016 led the investment of $35M into 32 early stage venture...") onto SoftBank.
Mr Son "invented an electronic translator that he sold to Sharp Corporation for about $1 million" when he was 19, around and has a pretty good record of tech investment over the 42 or so years since, with Softbank started in 1981, and plans to be around a while ("... SoftBank Group, which aims to keep growing for the next 300 years") https://group.softbank/en/corp/about/philosophy/value/ https://www.nytimes.com/1995/02/19/business/a-japanese-gambl...
I don't think they got here as a response to QE.
[+] [-] jodje|6 years ago|reply
https://www.bloomberg.com/news/articles/2019-06-06/how-son-m...
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] CyanLite2|6 years ago|reply
Problem #2: Morgan Stanley shorting Uber for its IPO is more FUD. This is routine in the investment banking world. Underwriter knows they will have to do this to provide liquidity. Haven't seen a popular IPO in the last decade where the underwriter doesn't hedge.
Problem #3: Softbank having a large corporate debt load isn't that big of a deal since interest rates are so low (sometimes negative) in Japan. You're going to PAY me millions to borrow billions? Yes, I'll take that deal every day of the week. SoftBank makes enough in revenue to more than make up for their debt load.
Problem #4: I think everybody and their dog knows Uber, Lyft, WeWork, etc. are all overvalued and will struggle to find a path to profitability in the near term. However, we could still see a 30-50% drop in public valuations on those companies. But they make up a very tiny slicer of the overall venture capital in tech right now. The largest companies are tech and they're making money hand-over-fist. Microsoft is at a trillion dollar valuation but they make $35bn a year in profits and still have $130bn in cash in the bank. It's not systemic risk as in the GFC of 2008.
TLDR: SoftBank is starting to unwind their positions and you may see a dip in the valuations for Uber, Lyft, WeWork, Tesla, and other non-profitable tech companies.
[+] [-] mises|6 years ago|reply
[+] [-] N_trglctc_joe|6 years ago|reply
[+] [-] aloer|6 years ago|reply
Since we can assume many VCs got a lot of cash back in a relatively short time I guess they will either double down and reinvest even more in tech/startups - or they will stay out of tech for the foreseeable future.
Or is it too early to tell because new funds would have to be set up first?
[+] [-] CSMastermind|6 years ago|reply
Softbank backed Lemonade is about to IPO in 6 months with a 2 billion dollar valuation. Neither their valuation nor an IPO makes sense to anyone in the industry. Lemonade is 99% marketing hype. Both the insurance book and the tech at the company are suspect at best.
The other one that's hit my radar recently is Compass, another Softbank backed company looking to IPO in the next 2 years at a stupid high (I've heard $5b) valuation. But they're cash flow negative with no path to profitability and they're increasing their spend rate instead of lowering it. So why would your average investor buy the stock?
Neither of those are mentioned in the article but it does seem like companies backed by Softbank are behaving pretty strangely.
[+] [-] PaulHoule|6 years ago|reply
https://www.youtube.com/watch?v=S3hA9cjBBwM
[+] [-] espeed|6 years ago|reply
[+] [-] mruts|6 years ago|reply
I worked as a quant at a portfolio analytics firm and had access to the portfolio data of thousands of different funds: hedge funds, fund of funds, endowment funds, and sovereign wealth funds. Many of our clients were in the Middle East, probably due to the founder being Palestinian (I am also half Palestinian if it matters).
These national investment authorities have massive amounts of capital, larger than any hedge fund or endowment. We’re talking about trillions of dollars in a single fund invested all over the Western world.
With that kind of money, you need to pretty much invest in anything and everything. Billions in T-notes, corporate bonds, commodities, equities, whatever.
The amount that needs to be invested is so large that you need to invest in things no sane person with 50m would invest in. This is the purpose of the SoftBank Vision fund: to provide capacity for seemingly infinite Middle Eastern oil money. They desperately need to diversify out of their incredibly volatile oil cash flows.
This pressure results in a glut of arab money into VC and everything, because all they want is to create a true market portfolio. And by market portfolio, I mean allocations into everything: VC, PE, REITs, bonds, equities.
[+] [-] mistermann|6 years ago|reply
Something like the situation of the unusually high wages Henry Ford paid his workers back in the day: https://www.npr.org/2014/01/27/267145552/the-middle-class-to...
[+] [-] lexapro|6 years ago|reply
I find that hard to believe. The Government Pension Fund of Norway is said to be the world’s largest sovereign wealth fund with just over US$1 trillion in assets.
[+] [-] presentation|6 years ago|reply
https://qz.com/1565699/the-complete-guide-to-sovereign-wealt...
[+] [-] ptx|6 years ago|reply
I'm not sure I get this simile. Is he saying that the company is actually not particularly opaque, but rather as transparent as a ghost?
Or is Casper the ghost known for being unusually opaque for a ghost?
Or is he talking about Casper the mattress company?
[+] [-] gvb|6 years ago|reply
Another one is "the term “corporate governance” is as foreign as that thing that came out of Sigourney Weaver’s stomach." The alien came out of Executive Officer Kane's stomach (John Hurt).
[+] [-] KaiserPro|6 years ago|reply
Casper is not transparent.
[+] [-] dsfyu404ed|6 years ago|reply
[+] [-] DoctorOetker|6 years ago|reply
[+] [-] MrRadar|6 years ago|reply
I hit this and immediately stopped reading the article. First, it's the "Green New Deal". Second, it's not solely AOC's work (though she is probably its most prominent proponent). Third, it's not nutty; it's, if anything, a down-payment on the work we need to do to address the climate crisis. Not to mention the rest of the article (up to that point) has nothing to do with the GND, so the author had to go out of their way to make themself look like an idiot.
[+] [-] dangus|6 years ago|reply
It doesn't matter whether we agree with the Green New Deal or not, the author is just outing themself as someone uninterested in looking beyond personal opinion and their political bandwagon.
[+] [-] asah|6 years ago|reply
[+] [-] wrong_variable|6 years ago|reply
- If SoftBank goes down, every coder loses his/her rice bowl. The pain inflicted on Son, Tim Cook and MBS is minimal, compared to your average tech worker.
- Valuation are not isolated beasts, the nominal value looks high because of the extraordinary financial alchemy that is going on the Fed. Large pool of capitals are betting the Fed is going to continue with QE4, QE5, .... QEn.
Imagine how it feels to be a sovereign wealth fund, watching the Fed print almost a trillion dollars / yearly in good times ! You must be terrified of what happens when the ball stops rolling.
- Owning growth stocks is an amazing way to hedge against many possible future outcome, both good and bad.
[+] [-] atomical|6 years ago|reply
[+] [-] RickJWagner|6 years ago|reply
[deleted]