Yesterday, as SoftBank's quarterly earnings report looming on the horizon, the FT published a deeply reported story in which a handful of SoftBank insiders sounded the alarm about the company playing fast and loose with its investments, and its handling of compliance-related issues. With the firm reeling from the blowup in Chinese stocks (it owns a massive stake in Alibaba, and has invested in Didi and other publicly traded Chinese firms, expectations for Tuesday's earnings were low to begin with. Yet, the firm still managed to disappoint.
SoftBank reported a 39% decline in Q1 net profit. The decline was due in large part to the absence of the one-off profits from the merger of Spring and T-Mobile, which was a major boon for SoftBank. Despite several notable disasters, both Vision Funds managed to record profits for the quarter.
Regarding China, Vision Fund CFO Navneet Govil said "our broader thesis in China is unchanged: It’s still a large, growing and compelling economic opportunity."
But China wasn't the only driver of SoftBank's investment losses: a 20% drop in the value of South Korean e-commerce giant Coupang resulted in more than $4 billion of losses for Vision Fund II this quarter.
To be sure, the firm's quarterly profit would have been erased if the results of China's crackdown on Didi had been factored into the quarterly earnings. The crackdown started just days after the quarter ended. One analyst pointed to this concentration in bets as a major hurdle for SoftBank long term.
"The problem with the Vision Fund SoftBank is that their largest investments so far have been middling to poor – WeWork, Uber, Didi," Boodry said. "Those three...