SoftBank’s Masayoshi Son May Have One Big Bet Left

SoftBank Group Corp. and its founder Masayoshi Son have spent the past five years writing checks totaling almost $140 billion to take stakes in nearly 400 startups in the belief that at least one will be successful enough to offer a sizeable return to investors. But with earnings further deteriorating, it’s time for SoftBank to offer those faithful followers its next big bet.

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Over the past year, Son has given shareholders reason enough to have doubts, and the latest earnings announcement reiterates the point. The Vision Funds dropped a combined $5 billion in the December quarter, and they’re net losers since inception. Son’s first Vision Fund, launched in 2017, is up $11 billion on investments of $89.6 billion, a modest 12% gain, the Japanese company reported Tuesday. But the Vision Fund 2, which started two years later, is down $16.7 billion on $49.9 billion of acquisitions. What’s worse, while SoftBank Group holds only a third of the better-performing first fund, it owns almost the entirety of the latter.

That puts Son and SoftBank’s management team in a bind. SVF1 is due to expire in just six years, while SVF2 has an extra three years to find some winners. That’s not a lot of time for this basket of investments to hit stratospheric valuations and provide better returns than an investor could get from sticking their money in an S&P 500 ETF.

Admittedly, SVF2 has around $6.5 billion left to spend, and Vision Fund chief Navneet Govil told Bloomberg News on Tuesday that the group could add more money to the second fund or open yet another. But starting its fourth fund in barely six years — three Vision Funds plus its smaller LatAm Fund — sounds like an inveterate gambler convinced his next pony will be the one that makes him rich.

Buying back its own shares is about all that SoftBank can do for now.

The Vision Funds are largely exhausted and management has limited power over when portfolio companies exit — whether by public offering or takeover. To be sure, SoftBank is more than just a venture capital business. It’s a major owner of telco SoftBank Corp. and remains a significant shareholder in Alibaba Group Holding Ltd., but it cannot do much more than ride the ups and downs of both companies.

So beyond some renewed momentum for semiconductor business ARM Limited, which it still hopes to list on a foreign bourse, or a much-rumored management buyout, the best Son and his front man — Chief Financial Officer Yoshimitsu Goto — can ponder is how to spend money to prop up its own stock. And if the cash runs out, it’ll need to raise more.

The strategy has worked so far, with $4 billion of buybacks in the December period helping the shares climb 15% for the best quarter in almost two years. Last month, the company announced plans to cancel 14.7% of shares by the end of this quarter. More may be on the way: In January, it filed to sell 1.5 trillion yen ($11.5 billion ) in bonds.

That’s not to say the bet will pay off. All the other businesses could remain a drag on sentiment given the many headwinds facing the domestic economy. The telecom unit continues to suffer from declining tariffs, ad growth at internet properties Line and Yahoo Japan will be a struggle given Tokyo’s monetary policy environment, and investors may prefer to shift their focus to companies that are more likely to benefit from rate tightening, such as financials and defensives including food.

SoftBank’s Vision Funds are not a failure, yet. But its investors need to be offered a good reason to hold on a little longer before they give up and take their money elsewhere, and the boring route of share buybacks is as good a bet as any right now.