This analysis was first published in SvD Näringsliv, in Swedish, on August 30th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
They lost billions in the scandal-ridden WeWork, handed Klarna a record valuation and allowed Uber to steamroll its competitors. Now Japanese SoftBank and its CEO Masa are fighting the match of their lives. Can they survive the tech chill?
Dressed in a black suit and black turtleneck, Masayoshi Son, CEO of SoftBank Group, steps onto a stage in Tokyo in May 2021. He looks pleased. With good reason, you might say. He is about to present the best result in Japanese corporate history.
The presentation begins with a black-and-white photo from 1981. It shows Fukuoka in southern Japan — the city where the story of Masayoshi Son, usually called Masa, and the company SoftBank begins. Masa tells the audience how he once told his first two employees that one day they would count the company’s value in the trillions of yen.
That day came and went long ago. And now he is about to blow past that milestone as Masa announces that SoftBank has made a profit of 4,900 billion yen — around SEK 380 billion at today’s exchange rate. To put that in perspective, it is roughly twice what Toyota made in profit during the same period.
A year earlier the situation was radically different, with a loss of 800 billion yen, SEK 62 billion. The result stands out on the chart of the company’s 40-year financial history that Masa layers over the photo of his hometown.
Masa concedes that, depending on how the stock market develops, the company may see “a few peaks and valleys”.
That would turn out to be the understatement of the year.
A year later, in May 2022, Masa steps onto the stage again. This time he is sombre. Masa has to explain how that record profit has now flipped — again — into a record loss. Covid-19, inflation and the tech chill on the stock market have made for a tough year for the Japanese conglomerate. The bottom line ends at minus 1,700 billion yen, about SEK 132 billion. In a single year.
“We are now going into defence mode,” Masa says, a little grimly.
The big question everyone is asking is whether SoftBank can turn this around and climb back to the same heights — or whether Masa will be remembered as the tech boom’s loudest cheerleader.
Even early in his career, Masa had an eye for good but risky investments. SoftBank started as a software distributor and quickly added both computer magazines and events to its offering. Interest in computers exploded during the late 1980s and SoftBank became Japan’s largest events company in computers and technology.
In 1994 Masa took SoftBank public at a valuation of $3 billion. That allowed him to start investing in internet companies. One of them was called Yahoo, and the partnership evolved into a joint company the following year — Yahoo Japan. The site went on to become enormously dominant in the country over the coming years, just like its American counterpart on the other side of the Pacific.
With the success of Yahoo Japan behind him, Masa could crank up his risk appetite further. In 2000 he invested $20 million in a young Chinese entrepreneur named Jack Ma and his company Alibaba. Today the company is one of our era’s largest and most important tech giants — and 20 years after Masa got in, the investment’s value has grown to more than $150 billion. Very likely one of the single best investments in history.
Masa’s eye for talented entrepreneurs also led him to another man who used to wear a black turtleneck on stage — Steve Jobs, then CEO of Apple.
In an interview with TV journalist Charlie Rose, he described his reasoning:
“If I’m going to get into the mobile operator market, I need a weapon. And who can create the world’s best weapon? There is only one person — Steve Jobs.”
This was 2005, two years before the iPhone was released, and Apple had enjoyed great success with the iPod music player. The company had never publicly mentioned a phone. Masa, however, had his own idea of how it might go:
“I called up Steve Jobs and went over to see him. I brought my little sketch of an iPod with phone functionality and gave it to him. He said, ‘Masa, don’t give me your sketch. I have my own.'”
Masa saw the potential years before the iPhone even existed. And he tried to get Jobs to give him exclusivity in Japan on this prospective phone — whenever it might be released. Jobs said he couldn’t do that, mainly for one very obvious reason: SoftBank was not a mobile operator.
But that was a problem Masa could solve. The following year SoftBank acquired Vodafone’s Japanese operator business, and in 2008 they got exclusive rights to the iPhone in Japan. The rest is history.
Having a long time horizon is a recurring theme throughout SoftBank’s history. And while ordinary companies tend to struggle to even figure out where the business should go more than five years out, Masa is aiming centuries ahead. In 2010 he speculated about what SoftBank would look like 300 years from now, and he regularly gives presentations in which he lays out his view of the coming 30 years.
But vision without execution doesn’t create much shareholder value. To capitalise on his visions Masa needed money. A lot more money, in fact. And to fill the coffers he had to go far outside the public markets to cover his needs. This was where both the risks, and the world’s attention, really started to accelerate.
In 2017 SoftBank Vision Fund was born — a standalone venture capital vehicle sitting under the SoftBank Group umbrella. The fund raised $100 billion, of which SoftBank itself put in $28 billion. The rest of the money came from more controversial places, as the majority came from sovereign funds in Saudi Arabia and the United Arab Emirates. Two years later the fund raised another $100 billion-plus.
Vision Fund quickly made a name for itself by investing enormous sums at very high valuations. And given the fund’s size, they could do it in many companies at once, within a short period and all over the world. The portfolio companies are well known and include TikTok’s parent ByteDance, transport company Uber, crypto platform FTX and office hotelier WeWork. In Sweden, Vision Fund led Klarna’s 2021 funding round that valued the fintech at $45.6 billion, more than 400 percent higher than their round the year before. That was the valuation that then had to be cut by around 85 percent when Klarna needed to refill the coffers earlier this summer.
This is where SoftBank starts to become a liability rather than an asset for the companies they invest in.
In a boom where everything points upwards, SoftBank’s money was a fast way to accelerate growth. You could buy market share and outspend your competitors.
But when sentiment in the market turns — as it clearly did in the tech world earlier this year — the high valuations can go from a trophy to a heavy yoke. Staff options are usually tied to the company’s valuation, so having to cut it can have big consequences for your employees. But finding investors willing to top — or even match — where SoftBank and Vision Fund have come in is not easy. And then big drops in value can suddenly appear. That was the trap Klarna fell into — and they are far from alone.
So Masa stands on the stage again, in August this year. He is under pressure once more. Vision Fund has just posted a record loss of $23.4 billion, about SEK 246 billion — in a single quarter. When Vision Fund’s many companies went public, SoftBank’s value surged, but when tech stocks crashed it fell just as quickly. Masa is now promising cutbacks to restore the market’s confidence.
There is much to suggest he can turn the company around again. SoftBank has been through many transformations in its roughly 40 years. From events company to mobile operator to one of the world’s leading tech investors. More transformations are probably still to come.
But he cannot do it alone. Because although Masa’s timing has been remarkable, the question is whether his enthusiasm is enough to charm new investors in a tech world where the air has gone out of the balloon and most people are planning for months rather than years.
Not everyone, as we know, is working on the same 300-year horizon as Masa.
