At the beginning of SoftBank Group's earnings conference, founder and CEO Masayoshi Son exhibited a frown that had nothing to do with the theme.

This is Tokugawa Ieyasu's self-portrait. After underestimating the enemy and rushing into the only defeat in his life (the three-party war), he ordered the painter to record his embarrassed escape for self-warning.

  65-year-old Masayoshi Son is entering such a dark moment step by step.

SoftBank Group, which is experiencing its biggest loss in its 40-year history, said: "I need to reflect on the six-month net loss of about 5 trillion yen and remember it as a warning."

  On August 8, SoftBank Group released its financial report for the first quarter of fiscal year 2022 (Note: from April to June).

The financial report shows that SoftBank’s first-quarter net sales were 1.572 trillion yen (about 11.625 billion U.S. dollars), a year-on-year increase of 6.3%; but SoftBank Group’s single-quarter loss set a new record again, with a net loss attributable to the parent of 3.1627 trillion yen. (approximately $23.388 billion).

The comparison is even more tragic. In the same period last year, it achieved a net profit of 761.509 billion yen.

  Twenty years ago, Masayoshi Son became famous by investing in Alibaba in 6 minutes, and embarked on a road of fighting Masa-PO (Note: Masayoshi Son's Japanese name is Masayoshi Son).

This daring adventurer, under the political and economic changes, has failed in investment due to the sharp drop in technology stocks in recent years, and has harvested a basket of rotten fruits on the books.

He began to reflect on his past "too confident" and was ashamed of his greed for profit.

  Such a change surprised the outside world. When he invested in Alibaba in 2000, Masayoshi Son was facing the same predicament, but Masayoshi Son was still fearless at that time, which surprised everyone who knew his experience.

But this time, Sun Zhengyi, who showed himself with a frown, was in a very different mood.

  He is no longer an activist.

Some analysts even believe that after experiencing unprecedented losses, a major purge of SoftBank's vision team, and a significant reduction in investment scale, Masayoshi Son may even restart SoftBank Group's privatization plan in order to get rid of various restrictions on listed companies. .

  Capital feeds giant babies

  SoftBank Group's business is multiple.

It started out with distribution and is now not just a venture capital firm, but the third-largest telecom operator in Japan.

The communications business has been spun off and listed. At first, it relied on the strategy of exclusive iPhone sales for many years, and it has grown into a Japanese communications giant.

  On September 19, 2014, the iPhone 6 was officially released in Japan.

Sun Zhengyi praised the camera performance of the iPhone 6 through social media, but the conversation changed, saying that he was in New York, USA.

In a few hours, Alibaba is about to list on the Nasdaq.

  Masayoshi Son's investment career has run through many landmark major investments and mergers and acquisitions, such as investing in Yahoo, acquiring Vodafone, and swallowing Sprint, the third operator in the United States, but Alibaba is the most successful one that Masayoshi Son has ever expressed. investment.

In 2000, 6 minutes decided to invest 20 million US dollars in Alibaba, and in 2004, it invested 60 million US dollars again.

When Alibaba went public in 2014, Masayoshi Son received a 2,900-fold return.

  This is indeed an unforgettable moment. Masayoshi Son has completed half of his investment history with outstanding achievements.

But in the second half, how could he bet on another Alibaba?

  The turning point started from the day Alibaba went public.

Masayoshi Son frequently made moves to global technology companies, and soon established a Vision Fund to leverage a larger territory.

  When the Vision Fund raised funds in its early days, the goal was $30 billion.

Perhaps he remembered the past of missing 30% of Amazon's equity by $30 million, and Sun Zhengyi changed the scale of $30 billion on the PPT to $100 billion.

On the side, Rajeev Misra, CEO of SoftBank Vision Fund, was very stunned. No fund in the world has such a large scale, but Masayoshi Son said: Life's too short to think small.

(Note: Life is too short, if you want to do it, you will have a big ticket.)

  In just a few years, the Vision Fund has invested in 370 projects in two phases.

Among them, the first phase of the fund (SVF1) has 94 projects, and the second phase (SVF2) has 276 projects (note: including withdrawn).

The Vision Fund targets unicorn or quasi-unicorn companies, including the Korean version of “Alibaba” Coupang, the US version of “” DoorDash, the largest online car-hailing company in the United States, Uber, and the largest online car-hailing company in Southeast Asia. Grab, India's largest e-commerce company Flipkart, China's largest AI unicorn SenseTime.

And WeWork was once the next Alibaba in Son's heart.

  However, due to its large size, the Vision Fund invests with late-stage VCs (late-stage venture capital), throwing huge amounts of money on mature unicorns on an unprecedented scale.

This kind of post-financing of the project and intervention before the IPO, with a large scale of capital investment that is far higher than the needs of the enterprise, invisibly piled up the valuation of the enterprise.

  The same is true for multiple star projects.

At WeWork’s peak, SoftBank’s post-investment valuation was about $47 billion, compared with only $8 billion when it went public last year.

After the entry of One Connect, SoftBank’s valuation soared to US$7.5 billion, and the market value at the end of 2019 was only US$3.66 billion.

Uber, Didi, and SenseTime are all in the same situation.

  According to relevant media reports, not only institutions in the market regard Vision Fund investment as an inverse indicator that corporate valuations are twice as high as the market, but there is even a saying in the industry that "Vision Fund is the biggest bubble in the primary market".

  This style once frightened Silicon Valley.

The media asked Sun Zhengyi for this. He said that he did not want to cause the outside world to worry about the valuation bubble of startups, and the investment will continue.

  Failure of IMasa-PO

  Going the opposite way is not just about high valuations. Sun Zhengyi even gave the invested companies sufficient funds, and then waved his hands, so that the companies did not have to rush to go public.

The industry calls Masayoshi Son's approach that he doesn't seem to be pursuing an exit very much: "Masa-PO".

  "Billion Dollar Loser", which records the history of WeWork's entrepreneurial failure, wrote that Masayoshi Son himself has long dreamed of taking SoftBank private and freeing himself from the constraints brought about by a public company.

Sun Zhengyi believes that "privatization" is a "gift".

So it bought $1.3 billion worth of WeWork stock from shareholders in 2017 and advised WeWork to delay the IPO.

  Son isn't concerned with profit margins, but how fast the company can grow.

There have been many reports in foreign media that recorded the details of the conversation between the entrepreneur and Sun Zhengyi.

Sam Zaid, CEO of car-sharing platform Getaround, remembers Masayoshi Son asking him, "How can we help you expand your company 100 times?" Masa-PO, suspending the listing schedule, Masayoshi Son hopes that the company will be supported by sufficient funds Scale up quickly.

Because of the way that Alibaba's tenfold expansion has been emphasized too many times in investment companies, Sun Zhengyi is even called Mr.Ten.

  The investment failure of SVF1 made SoftBank its first loss in 2019.

The LP (limited partner) of the Vision Fund also has opinions on Sun Zhengyi's style.

Even if the pace of SVF2 slows, sell cautiously.

But under the economic downturn, bad luck ensues.

As of June 30, of the 469 companies held by the Vision Fund (including Phase I, Phase II and other funds), 277 lost money, accounting for nearly 60%.

  For example, the former star project Coupang has a floating loss of 2.37 billion US dollars, SenseTime (0020.HK) has a floating loss of 1.75 billion US dollars, and DoorDash recorded a loss of 1.6 billion US dollars.

SVF2’s holdings of publicly traded companies have lost a total of $3.839 billion in valuation (net) as shares in Norwegian warehouse robotics companies AutoStore and WeWork fell.

For private companies, unrealized valuation losses (net) recorded by SVF1 totaled $2.19 billion.

SVF2 reached 6.553 billion US dollars.

  Although SoftBank said that LTV (loan-to-value, the ratio between debt and asset value) has been controlled within 25%, which is at a low level.

But the actual number may be much larger. The Wall Street Journal quoted Bloomberg industry research that SoftBank's debt-to-equity valuation ratio recently surpassed 36%, reaching a level SoftBank believes would only be reached in an emergency.

Masayoshi Son can only leverage larger-scale funds by selling/mortgaging equity.

  The Alibaba equity is the only large liquid asset of SoftBank Group.

  SoftBank Group has repeatedly sold Alibaba shares in the face of huge capital needs.

  In 2016, in order to complete the wholly-owned acquisition of the British chip company ARM in the secondary market, SoftBank sold at least US$7.9 billion in Alibaba shares for the first time, reducing its shareholding ratio to 28%.

After the first loss in 2019, SoftBank Group sold Alibaba equity to raise 1.25 trillion yen (about 11.5 billion U.S. dollars) and other stocks in the fiscal quarter of 2020.

In 2021, it is reported that a $10 billion loan will be sought with Alibaba shares as collateral.

In 2022, SoftBank Group announced the early settlement of forward contracts, involving at most about 242 million Alibaba American depositary shares, cashing out $34.5 billion, with a stake of 14.3%.

  Most of SoftBank Group's equity sales are completed through forward contracts.

A forward contract is a derivative product, and both parties agree to buy or sell a certain amount of a certain financial asset at a certain price in the future at a certain time in the future.

This method can avoid exchange rate fluctuations, and at the same time meet Son's expectations of completing the sale plan as "quietly" as possible without affecting Alibaba's stock price.

For example, in the first reduction and sale in 2016, the delivery on the last day after three years was confirmed.

  This is also the reason for cashing out $34.5 billion, but having less impact on Alibaba's stock price.

Because the relevant counterparty has completed the sale in the market.

  Privatisation rumours abound

  Only since April this year, SoftBank Group has still liquidated Uber, selling shares of online real estate company Opendoor, health care company Guardant, Shell Search, and online personal finance company SoFi Technologies.

Meanwhile, SoftBank bought Fortress for $3.3 billion in 2017; it is now looking to sell it and book big losses.

The label of "buy high sell low" (buy high sell low) has become a lingering shadow for SoftBank.

  Due to the global impact of inflation and the collapse of technology stocks, Berkshire Hathaway, the most successful Buffett-owned company in the past, and the "Tiger Global Management Fund" are sharing this cold and hot.

Hathaway announced its interim financial report for 2022, showing a loss of $38.295 billion in the first half of the year, the worst half-year performance in the past 20 years.

Tiger Global said its overall loss in the first half was up 50 percent from the end of last year.

  Compared with Masayoshi Son's "sincere introspection", Berkshire Hathaway is facing losses and advises investors to pay less attention to the quarterly fluctuations of its equity investments.

  SoftBank Group's situation is more complicated than Berkshire's.

Not only the issues of assets and liabilities and dissatisfaction with LPs, but since last year, the senior management of the Vision Fund has undergone a major purge, many partners have left, and Misra, Sun Zhengyi’s closest comrade-in-arms, has also resigned from some positions.

The policy has also been gradually tightened, and SoftBank Group has begun to cautiously launch new projects. Sun Zhengyi said, "There are also many golden eggs in the 473 companies in hand. What we need to do now is incubation."

  SMBC Nikko analyst Satoru Kikuchi and some analysts believe that SoftBank Group's strategy has undergone a big turn, and Son is obviously conservative.

"We believe that changes in corporate form, such as MBO (management buyout), may appear in the near future," Satoru Kikuchi wrote in the report.

  In addition to MBO, share repurchase is also one of the paths to privatization.

According to relevant Japanese regulations, when Sun Zhengyi's shareholding ratio reaches 66%, other shareholders can be forced to sell shares.

  When the Vision Fund was losing money, Son had been hoping that SoftBank would be taken private.

In 2020, Masayoshi Son discussed a privatization plan with major shareholders such as American hedge fund Elliott and Abu Dhabi sovereign wealth fund Mubadala at the shareholders meeting, but was rejected by shareholders.

In the end, under the leadership of Elliott, SoftBank Group launched a stock repurchase program to stabilize the stock price.

  The huge capital requirement, in addition to paying down debt, is to buy back shares.

  In 2020, SoftBank Group announced a 2.5 trillion yen repurchase plan.

In November 2021, SoftBank Group announced a 1 trillion yen share repurchase plan within one year.

After the release of the financial report on August 10, SoftBank Group once again announced a 400 billion share repurchase plan for the new year (August 9, 2022 to August 8, 2023), with a maximum repurchase of 6.3% of its shares.

  SoftBank has previously expressed that by repurchasing shares, it will gradually increase Sun Zhengyi's shareholding ratio and eventually achieve privatization.

But the road is still long.

  Sun Zhengyi's office also hung a portrait of Sakamoto Ryoma.

Sakamoto Ryoma was a reformist in the end of the Tokugawa period, who ended the shogunate peacefully and pointed the way for the Meiji Restoration era.

In the hearts of the Japanese, Sakamoto Ryoma is a pioneer who is not restricted by the past and always walks ahead of the times.

  The original intention of the Vision Fund is to lay the foundation for a 300-year long-term development plan.

Since the risk of collapse is unavoidable, Sun Zhengyi must "make a decision as important as Longma" as he once said.