SoftBank reports huge loss as Son admits to learning harsh lessons

Japan’s SoftBank Group reported a whopping overall operating loss of about $6.5 billion for its second fiscal quarter, its first loss in 14 years, with much of the blame going to its investments in WeWork and Uber.

The problems associated with WeWork, whose CEO resigned last month after a botched initial public offering (IPO), dominated the nearly two-hour earnings presentation by SoftBank CEO Masayoshi Son. He admitted to having learned harsh lessons from the experience but indicated his long-term vision hasn’t changed.

Former Sprint CEO Marcelo Claure last month was named executive chairman of WeWork. Son noted Claure’s experience at Sprint and his involvement with the planned merger with T-Mobile. He asked Claure to focus on turning around WeWork, which he said is not a sinking boat. Claure was appointed executive chairman of Sprint in May 2018, when Michel Combes was named CEO.

SoftBank said its profit for the six months that ended in September totaled nearly $3.9 billion, about half the level of the same period a year ago, the New York Times reported.

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SoftBank now has five reportable segments: SoftBank Vision Fund and Delta Fund, SoftBank, Sprint, Arm, and Brightstar. Claure co-founded Brightstar, the mobile phone distribution company, before being tapped to take over from Dan Hesse at Sprint in 2014.

SoftBank, which acknowledged Tuesday’s Federal Communications Commission (FCC) order approving the Sprint/T-Mobile merger in a press release, became the majority owner of Sprint in 2013.

If the merger doesn't happen, things don't look great for Sprint, which reported its latest quarterly wireless revenue decreased $453 million year-over-year to $5 billion. The results were negatively impacted by estimated reimbursements to the U.S. government for collecting Lifeline subsidy payments it wasn’t entitled to, but it didn’t disclose specific amounts.

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Analysts at LightShed Partners earlier this week noted that the T-Mobile/Sprint deal passed a merger extension deadline on Nov. 1, providing a chance for Deutsche Telekom (DT), the majority owner of T-Mobile, to renegotiate the terms of the deal, given the erosion at Sprint and the rising cost of the transaction.  

“SoftBank can clearly walk and chew gum at the same time as shown by the number of investments they have made over the past year,” wrote LightShed analysts Walter Piecyk and Joe Galone. “But the level of distraction at SoftBank must be high at the moment given the meltdown at WeWork. SoftBank CEO, Masa Son, was in Riyadh last week, reportedly trying to raise more capital for Vision Fund 2. Meanwhile, SoftBank COO and former Sprint CEO, Marcelo Claure, has taken on the WeWork debacle as Executive Chairman. He also ran the NYC marathon over the weekend. Both executives would likely play a critical role in any deal renegotiation.”

The analysts previously noted the ongoing negative news cycle around SoftBank and said it wasn’t the size of the possible investment losses at WeWork that concern them; it’s the ongoing damage to SoftBank’s reputation and how that might limit future investing.