12 ms·

SoftBank could bring down the house?

265 points by tigerlily 7y ago

dzdt 7y ago
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?
- chid 7y ago
  I just wonder how one can make money if they believe that Softbank will crash in the 5 year horizon
  - bubblewrap 7y ago
    puts?
    - deleted 7y ago
      [deleted]
    - nradov 7y ago
      Puts on what?
      - theWheez 7y ago
        I would think on a variety of companies fitting the description the author makes. Consuming large amounts of capital with plans mostly being "growth"
  - empath75 7y ago
    Unless you’re privy to information the market in general is not, it’s pretty unlikely.
  - tim333 7y ago
    Seems you can shot Softbank stock http://shortsqueeze.com/shortinterest/stock/SFTBF.htm http://shortsqueeze.com/shortinterest/stock/SFTBF.htm
- deleted 7y ago
  [deleted]
RickJWagner 7y ago
A website called 'Capatlist Exploits'? Must be nearing election year, I guess.
ptx 7y ago
> Now, if this wasn’t bad enough, consider that this is a company as opaque as Casper. 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?
- dsfyu404ed 7y ago
  Based on the sentence structure he's almost certainly being sarcastic. He could have said "opaque like glass".
  - zaroth 7y ago
    But again, that’s backwards for the point being made. It should be “clear as mud” to make the point that their finances are inscrutable.
    - nwienert 7y ago
      Yea this part alone made me lose a little faith in the writer
- gvb 7y ago
  He has several mixed up metaphors. 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).
  - tedeh 7y ago
    To be fair the alien did come out of her once in Alien 3, and several times in Alien Resurrection (4)
  - wellpast 7y ago
    Pedantically... She has a dream — opens Aliens, I think — and an alien pokes out of her stomach.
wrong_variable 7y ago
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.
- yasp 7y ago
  Should tech workers consider buying deep out of the money puts on tech ETFs as a form of insurance?
  - soVeryTired 7y ago
    You should only do that if you believe the crunch is coming in three months or so. Unless you can time the crunch exactly, put options are a mug's game. They bleed value over time (negative theta in industry parliance). If you really want to protect yourself, just plan your finances as if your high income was temporary rather than permanent.
    - yasp 7y ago
      Can't you get options whose expiry is a year or two out (LEAPs), or is the time premium not worth it?
      - deleted 7y ago
        [deleted]
      - soVeryTired 7y ago
        I never traded long-dated options when I was in finance, but anything with longer than a three-month maturity was crazy expensive in terms of the spread you'd pay. These are not liquid instruments. It's been a while since I've done the maths, but I'm pretty sure it'd be cheaper to buy shorter dated puts and roll them over on expiry. Which would still be very expensive.
human20190310 7y ago
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?
- venantius 7y ago
  They went further than the greenshoe - Matt Levine has a great post breaking it down (see the second section of his post here: https://www.bloomberg.com/opinion/articles/2019-05-15/wework-separates-buildings-and-beer https://www.bloomberg.com/opinion/articles/2019-05-15/wework...).
vmurthy 7y ago
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? [1]https://cdn.group.softbank/en/corp/set/data/irinfo/financials/financial_reports/pdf/2019/softbank_results_2019q4_001.pdf https://cdn.group.softbank/en/corp/set/data/irinfo/financial... Edit: spelling mistakes /facepalm
- paganel 7y ago
  > 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).
  - dskrvk 7y ago
    Debt is a type of liability, so the second number already includes the first one. That said, their liabilities are ~3x their current market cap, and that’s assuming it is real, which the article argues is likely far from being the case. So if the portfolio valuation starts to really slide down, it’s unclear how they’ll be able to pay down the debt or convince new creditors to lend them more.
  - onlyrealcuzzo 7y ago
    I was under the impression most if SoftBank's loans are denominated in JPY and have almost 0% interest. If you have $143Bn in interesting bearing debt at like 0.1% interest -- as long as you buy anything that will inflate at the normal rate of inflation -- you should make a killing, right?
aloer 7y ago
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?
- CSMastermind 7y ago
  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.
  - webninja 7y ago
    I wish lemonade would expand to more states. I’m willing to invest in them until they do.
  - mrnobody_67 7y ago
    Giving any entrepreneur $300m or $1b (in the case of Nuro) and not expecting "strange behaviour" would be weird.... that's private jet, Four Season suites for conferences with butlers, and Thomas Keller catering for company Xmas party type money.
falsedan 7y ago
> It’s the classic Ponzi scheme. You always need fresh new capital to pay off the old capital in order for the scheme to continue. When there is no fresh new money, everything reverses and folks quickly realise the value of positive cashflow. That's... just economic growth in capitalism
- Kye 7y ago
  You're on the verge of a breakthrough. Capitalism as typically practiced works like a Ponzi scheme. It's not sustainable without someone, like a government or a standards body, setting boundaries. For example: Banks destroy economies without a government saying "you need to have x cash for y loans" and "you need to pay into this fund to insure you against bank runs."
  - rdlecler1 7y ago
    Capitalism requires a constant increases in abundance. Tech provides that.
  - bubblewrap 7y ago
    What "rule of capitalism" are you referring to?
  - kjsbfkjbf 7y ago
    Close. There are no incentives for a government or a standards body to malign profit for the sake of anything other than longer-term profit. So, capitalism does not work... in any configuration. If regulation truly worked we would not be so fucked with regards to our rape of the Earth.
    - maxxxxx 7y ago
      Without regulation we would be much worse off. There is a lot of room for improvement though
      - kjsbfkjbf 7y ago
mruts 7y ago
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.
- lexapro 7y ago
  >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.
  - nabla9 7y ago
    I agree. Norwegian fund seems to be the biggest single fund. Saudis have three separate funds that are bigger combined. UAE has multiple wealth funds that are > $1 trillion together.
  - deleted 7y ago
    [deleted]
  - wp381640 7y ago
raesene9 7y ago
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)
- dashundchen 7y ago
  Saudi Arabia and MBS are reported to have invested heavily in SoftBank, especially the vision fund. https://www.nytimes.com/2018/11/05/business/softbank-son-saudi-arabia-khashoggi.html https://www.nytimes.com/2018/11/05/business/softbank-son-sau...
- duxup 7y ago
  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?
- nikanj 7y ago
  Japan is the third-biggest economy on the planet, after US and China. Their shopping spree sounds more reasonable than the Icelandic one.
MrRadar 7y ago
> 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.
- MentallyRetired 7y ago
  I just couldn't deal with the metaphors and attempts to be witty in every single sentence. The overall point is valid, but the article is awfully written.
- asah 7y ago
  consider: it's "nutty" because it's politically infeasible, not because it's wrong.
  - DevX101 7y ago
    The New Deal was politically infeasible until it wasn't.
    - nradov 7y ago
      The original New Deal only became politically feasible when the country was on the verge of a violent socialist uprising.
      - kjsbfkjbf 7y ago
        So we know what we must do.
- whenchamenia 7y ago
  As written, the bill, whatever you want to call it, is nutty. Specifically in implementation. While the idea behind it my not be nutty at all, its hard to call bs on that statement..
jcfrei 7y ago
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.
- wrong_variable 7y ago
  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.
  - jcfrei 7y ago
    > 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. BoJ's money printing is on the same level as ECB and Fed. Most recent data I could find is here: https://www.valuewalk.com/2019/05/gundlach-g4-central-banks-balance-sheets/ https://www.valuewalk.com/2019/05/gundlach-g4-central-banks-... Both ECB and BoJ hold around $5trn in assets, Fed is third with around $4trn. > interest rates policy ( monetary ) has little to do with capital efficiency. I don't know what you mean by capital efficiency. The BoJ corporate bond purchasing program lowers interest rates for all issuers on the Yen bond market, including the ones issued by SoftBank. Because SoftBank itself invests into the fund (around $28bn) and raised capital with bond issuance the link between BoJ open market interventions and startup valuations should be clear. > 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. In the case of the ECB and the Fed (don't know about BoJ) the reason is actually the opposite. Fiscal expansion has been very unpopular politically in both the US and the EU (there mainly due to the fiscal austerity demanded by Germany). Because there was no political will to increase national debts, the central banks stepped in and started to directly purchase bonds (both governmental and private) in order to rekindle growth after the financial crisis. If governments started massive infrastructure projects or otherwise expanded their balance sheets, then this central bank intervention would have been much smaller. As a result of central bank interventions - which has reduced interest rates for gov. bonds - countries have started to issue more debt once again. > Market forces ( globalization + technology ) are having tremendous deflationary effects that is pushing down interest rates, their job is to find out that number. As far as I know there isn't a consensus for an explanation why the current low inflation environment persists (the "New Normal"). Globalization and technology might well be an explanation but global demographic shifts could also be an important factor (ageing populations and declining birth rates in most industrialized countries).
dhfromkorea 7y ago
> "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... https://www.bloomberg.com/news/articles/2018-11-20/softbank-to-invest-2-billion-in-korean-e-commerce-site-coupang https://www.bloomberg.com/news/articles/2018-11-20/softbank-...
jodje 7y ago
Before burning down the house How Son Made 62% Return on SoftBank's $64 Billion in Tech Deals https://www.bloomberg.com/news/articles/2019-06-06/how-son-made-62-return-on-softbank-s-64-billion-in-tech-deals https://www.bloomberg.com/news/articles/2019-06-06/how-son-m...
CyanLite2 7y ago
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.
espeed 7y ago
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.
deleted 7y ago
[deleted]
cyphunk 7y ago
> But the real reason it’s as nutty as a AOC’s Green Deal bro's will be bro's
atomical 7y ago
What's the argument against Alibaba?
PaulHoule 7y ago
See https://www.youtube.com/watch?v=S3hA9cjBBwM https://www.youtube.com/watch?v=S3hA9cjBBwM
tim333 7y ago
>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. 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://group.softbank/en/corp/about/philosophy/value/ https://www.nytimes.com/1995/02/19/business/a-japanese-gambler-hits-the-jackpot-with-softbank.html https://www.nytimes.com/1995/02/19/business/a-japanese-gambl... I don't think they got here as a response to QE.
mises 7y ago
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.
- N_trglctc_joe 7y ago
  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.

265 points by tigerlily 7y ago

dzdt 7y ago

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?

chid 7y ago
I just wonder how one can make money if they believe that Softbank will crash in the 5 year horizon
- bubblewrap 7y ago
  puts?
  - deleted 7y ago
    [deleted]
  - nradov 7y ago
    Puts on what?
    - theWheez 7y ago
      I would think on a variety of companies fitting the description the author makes. Consuming large amounts of capital with plans mostly being "growth"
- empath75 7y ago
  Unless you’re privy to information the market in general is not, it’s pretty unlikely.
- tim333 7y ago
  Seems you can shot Softbank stock http://shortsqueeze.com/shortinterest/stock/SFTBF.htm http://shortsqueeze.com/shortinterest/stock/SFTBF.htm
deleted 7y ago
[deleted]

RickJWagner 7y ago

A website called 'Capatlist Exploits'? Must be nearing election year, I guess.

ptx 7y ago

> Now, if this wasn’t bad enough, consider that this is a company as opaque as Casper. 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?

dsfyu404ed 7y ago
Based on the sentence structure he's almost certainly being sarcastic. He could have said "opaque like glass".
- zaroth 7y ago
  But again, that’s backwards for the point being made. It should be “clear as mud” to make the point that their finances are inscrutable.
  - nwienert 7y ago
    Yea this part alone made me lose a little faith in the writer
gvb 7y ago
He has several mixed up metaphors. 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).
- tedeh 7y ago
  To be fair the alien did come out of her once in Alien 3, and several times in Alien Resurrection (4)
- wellpast 7y ago
  Pedantically... She has a dream — opens Aliens, I think — and an alien pokes out of her stomach.

wrong_variable 7y ago

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.

yasp 7y ago
Should tech workers consider buying deep out of the money puts on tech ETFs as a form of insurance?
- soVeryTired 7y ago
  You should only do that if you believe the crunch is coming in three months or so. Unless you can time the crunch exactly, put options are a mug's game. They bleed value over time (negative theta in industry parliance). If you really want to protect yourself, just plan your finances as if your high income was temporary rather than permanent.
  - yasp 7y ago
    Can't you get options whose expiry is a year or two out (LEAPs), or is the time premium not worth it?
    - deleted 7y ago
      [deleted]
    - soVeryTired 7y ago
      I never traded long-dated options when I was in finance, but anything with longer than a three-month maturity was crazy expensive in terms of the spread you'd pay. These are not liquid instruments. It's been a while since I've done the maths, but I'm pretty sure it'd be cheaper to buy shorter dated puts and roll them over on expiry. Which would still be very expensive.

human20190310 7y ago

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?

venantius 7y ago
They went further than the greenshoe - Matt Levine has a great post breaking it down (see the second section of his post here: https://www.bloomberg.com/opinion/articles/2019-05-15/wework-separates-buildings-and-beer https://www.bloomberg.com/opinion/articles/2019-05-15/wework...).

vmurthy 7y ago

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? [1]https://cdn.group.softbank/en/corp/set/data/irinfo/financials/financial_reports/pdf/2019/softbank_results_2019q4_001.pdf https://cdn.group.softbank/en/corp/set/data/irinfo/financial... Edit: spelling mistakes /facepalm

paganel 7y ago
> 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).
- dskrvk 7y ago
  Debt is a type of liability, so the second number already includes the first one. That said, their liabilities are ~3x their current market cap, and that’s assuming it is real, which the article argues is likely far from being the case. So if the portfolio valuation starts to really slide down, it’s unclear how they’ll be able to pay down the debt or convince new creditors to lend them more.
- onlyrealcuzzo 7y ago
  I was under the impression most if SoftBank's loans are denominated in JPY and have almost 0% interest. If you have $143Bn in interesting bearing debt at like 0.1% interest -- as long as you buy anything that will inflate at the normal rate of inflation -- you should make a killing, right?

aloer 7y ago

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?

CSMastermind 7y ago
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.
- webninja 7y ago
  I wish lemonade would expand to more states. I’m willing to invest in them until they do.
- mrnobody_67 7y ago
  Giving any entrepreneur $300m or $1b (in the case of Nuro) and not expecting "strange behaviour" would be weird.... that's private jet, Four Season suites for conferences with butlers, and Thomas Keller catering for company Xmas party type money.

falsedan 7y ago

> It’s the classic Ponzi scheme. You always need fresh new capital to pay off the old capital in order for the scheme to continue. When there is no fresh new money, everything reverses and folks quickly realise the value of positive cashflow. That's... just economic growth in capitalism

Kye 7y ago
You're on the verge of a breakthrough. Capitalism as typically practiced works like a Ponzi scheme. It's not sustainable without someone, like a government or a standards body, setting boundaries. For example: Banks destroy economies without a government saying "you need to have x cash for y loans" and "you need to pay into this fund to insure you against bank runs."
- rdlecler1 7y ago
  Capitalism requires a constant increases in abundance. Tech provides that.
- bubblewrap 7y ago
  What "rule of capitalism" are you referring to?
- kjsbfkjbf 7y ago
  Close. There are no incentives for a government or a standards body to malign profit for the sake of anything other than longer-term profit. So, capitalism does not work... in any configuration. If regulation truly worked we would not be so fucked with regards to our rape of the Earth.
  - maxxxxx 7y ago
    Without regulation we would be much worse off. There is a lot of room for improvement though
    - kjsbfkjbf 7y ago

mruts 7y ago

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.

lexapro 7y ago
>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.
- nabla9 7y ago
  I agree. Norwegian fund seems to be the biggest single fund. Saudis have three separate funds that are bigger combined. UAE has multiple wealth funds that are > $1 trillion together.
- deleted 7y ago
  [deleted]
- wp381640 7y ago

raesene9 7y ago

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)

dashundchen 7y ago
Saudi Arabia and MBS are reported to have invested heavily in SoftBank, especially the vision fund. https://www.nytimes.com/2018/11/05/business/softbank-son-saudi-arabia-khashoggi.html https://www.nytimes.com/2018/11/05/business/softbank-son-sau...
duxup 7y ago
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?
nikanj 7y ago
Japan is the third-biggest economy on the planet, after US and China. Their shopping spree sounds more reasonable than the Icelandic one.

MrRadar 7y ago

> 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.

MentallyRetired 7y ago
I just couldn't deal with the metaphors and attempts to be witty in every single sentence. The overall point is valid, but the article is awfully written.
asah 7y ago
consider: it's "nutty" because it's politically infeasible, not because it's wrong.
- DevX101 7y ago
  The New Deal was politically infeasible until it wasn't.
  - nradov 7y ago
    The original New Deal only became politically feasible when the country was on the verge of a violent socialist uprising.
    - kjsbfkjbf 7y ago
      So we know what we must do.
whenchamenia 7y ago
As written, the bill, whatever you want to call it, is nutty. Specifically in implementation. While the idea behind it my not be nutty at all, its hard to call bs on that statement..

jcfrei 7y ago

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.

wrong_variable 7y ago
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.
- jcfrei 7y ago
  > 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. BoJ's money printing is on the same level as ECB and Fed. Most recent data I could find is here: https://www.valuewalk.com/2019/05/gundlach-g4-central-banks-balance-sheets/ https://www.valuewalk.com/2019/05/gundlach-g4-central-banks-... Both ECB and BoJ hold around $5trn in assets, Fed is third with around $4trn. > interest rates policy ( monetary ) has little to do with capital efficiency. I don't know what you mean by capital efficiency. The BoJ corporate bond purchasing program lowers interest rates for all issuers on the Yen bond market, including the ones issued by SoftBank. Because SoftBank itself invests into the fund (around $28bn) and raised capital with bond issuance the link between BoJ open market interventions and startup valuations should be clear. > 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. In the case of the ECB and the Fed (don't know about BoJ) the reason is actually the opposite. Fiscal expansion has been very unpopular politically in both the US and the EU (there mainly due to the fiscal austerity demanded by Germany). Because there was no political will to increase national debts, the central banks stepped in and started to directly purchase bonds (both governmental and private) in order to rekindle growth after the financial crisis. If governments started massive infrastructure projects or otherwise expanded their balance sheets, then this central bank intervention would have been much smaller. As a result of central bank interventions - which has reduced interest rates for gov. bonds - countries have started to issue more debt once again. > Market forces ( globalization + technology ) are having tremendous deflationary effects that is pushing down interest rates, their job is to find out that number. As far as I know there isn't a consensus for an explanation why the current low inflation environment persists (the "New Normal"). Globalization and technology might well be an explanation but global demographic shifts could also be an important factor (ageing populations and declining birth rates in most industrialized countries).

dhfromkorea 7y ago

> "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... https://www.bloomberg.com/news/articles/2018-11-20/softbank-to-invest-2-billion-in-korean-e-commerce-site-coupang https://www.bloomberg.com/news/articles/2018-11-20/softbank-...

jodje 7y ago

Before burning down the house How Son Made 62% Return on SoftBank's $64 Billion in Tech Deals https://www.bloomberg.com/news/articles/2019-06-06/how-son-made-62-return-on-softbank-s-64-billion-in-tech-deals https://www.bloomberg.com/news/articles/2019-06-06/how-son-m...

CyanLite2 7y ago

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.

espeed 7y ago

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.

deleted 7y ago

[deleted]

cyphunk 7y ago

> But the real reason it’s as nutty as a AOC’s Green Deal bro's will be bro's

atomical 7y ago

What's the argument against Alibaba?

PaulHoule 7y ago

See https://www.youtube.com/watch?v=S3hA9cjBBwM https://www.youtube.com/watch?v=S3hA9cjBBwM

tim333 7y ago

>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. 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://group.softbank/en/corp/about/philosophy/value/ https://www.nytimes.com/1995/02/19/business/a-japanese-gambler-hits-the-jackpot-with-softbank.html https://www.nytimes.com/1995/02/19/business/a-japanese-gambl... I don't think they got here as a response to QE.

mises 7y ago

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.

N_trglctc_joe 7y ago
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.