
SoftBank Reveals $6.5B Loss from Uber, WeWork Turmoil - LogicRiver
https://www.bloomberg.com/news/articles/2019-11-06/softbank-posts-6-5-billion-operating-loss-on-wework-and-uber
======
Traster
It seems pretty clear that Softbank were badly misvaluing We and Uber. The
second they hit the public markets suddenly Softbank could no longer sustain
their paper valuations which is causing this loss. It's kind of funny that
Softbank can mark its own homework on this - they buy the company and then
because the investment isn't liquid they can basically choose any valuation
they want for the companies they own. It'll be interesting to see how
sceptical people are of the other companies in the Softbank portfolio. For
example, they acquired ARM for $31Bn- what are they claiming it's worth now?

~~~
treis
>Softbank were badly misvaluing We and Uber.

I don't think these two really belong together. We is probably worth nothing,
and even that might be generous. Uber is worth billions with the only real
debate being how many billions.

~~~
dentemple
WeWork has actual real-estate assets. So, they do have _some_ worth.

Certainly not Softbank's valuation-levels of worth, but it's still not
nothing.

~~~
levthedev
WeWork, for the most part, does not own actual real-estate assets. They mostly
have actual real-estate liabilities - leases.

They do own a relatively small amount of property, like their partial
ownership of the Lord and Taylor building, which for reference is now
considered a huge mistake (it's bleeding money).

------
cs702
$6.5B is the _recognized_ loss, i.e., the lowest possible amount they can get
away writing off on their accounting books.

The _real economic loss_ may be much higher.

~~~
wjnc
To agree with this. As someone with more of a general economic and metrics
background, I was quite amazed when I first learned of the breadth of possible
valuation methods IFRS (International Financial Reporting Standards) allows
for. Some are pretty close to what you'd expect for the valuation of a
financial instrument (after all, equity is one of those), while some are
'pretty far away'.

~~~
SeanAppleby
Are you allowed to switch between them at will, or is there a legal inertia
that pushes you to continue reporting using the same one?

~~~
airstrike
I think he's talking about the levels of fair value measurement

[https://www.iasplus.com/en/standards/ifrs/ifrs13](https://www.iasplus.com/en/standards/ifrs/ifrs13)

No anchor links on that page, so I'll just quote some snippets here:

Level 1 inputs are quoted prices in active markets for identical assets or
liabilities that the entity can access at the measurement date.

Level 2 inputs are inputs other than quoted market prices included within
Level 1 that are observable for the asset or liability, either directly or
indirectly.

Level 3 inputs inputs are unobservable inputs for the asset or liability.
[IFRS 13:86]

Unobservable inputs are used to measure fair value to the extent that relevant
observable inputs are not available, thereby allowing for situations in which
there is little, if any, market activity for the asset or liability at the
measurement date. An entity develops unobservable inputs using the best
information available in the circumstances, which might include the entity's
own data, taking into account all information about market participant
assumptions that is reasonably available.

------
0zymandias
Other investors have been saying that SoftBank has been overpaying for years.
It looks like they were right and you need to discount any SoftBank valuation
by about 50%.

The SoftBank playbook has an even bigger negative impact on employees. They
are granted options at an inflated price. When the stock collapses (Uber,
WeWork, Wag) they lose more than others because most of the comp is in equity.

As an employee, I would stay far away from any SoftBank funded company.

~~~
alexpetralia
And, of course, they _paid_ for that comp (exercising of stock options) in
cash.

------
Twirrim
I keep thinking about Nick Leeson, the trader who caused Barings Bank to
collapse.

He was highly successful with his speculative trades, but eventually things
got out of hand and he was having to make bigger and bigger gambles to try to
recover the lost money, until it all fell apart on him.

You can talk about being a fund with a view to 300 years of the future, but
you're not going to get there if you act recklessly with the _now_.

------
nabla9
Taking huge risk and huge losses would be acceptable.

But this is also a guy who fails to enforce the bare minimums for corporate
governance in companies where he is the major shareholder.

------
ckastner
It's refreshing to see that the financial Shenanigans SoftBank was playing
with WeWork and even Uber backfired like that in the end.

Manipulating pre-IPO valuations as aggressively as they did was just insane.

~~~
goatinaboat
_Manipulating pre-IPO valuations as aggressively as they did was just insane_

Never forget the endgame was to dump it at the inflated valuation on retail
investors and pension funds. This was a heist on the scale of Madoff, if they
pulled it off.

------
KoftaBob
It's like these investors never learn that the "our unit economics are
horrible, but it'll be worth it when/if we become a monopoly!" philosophy
rarely plays out well.

The same industry that harps on about how disruptable old school monopolies
are, is somehow buying into that? I don't get it.

~~~
thrav
I mean, the strategy has created all of the biggest winners: Amazon, Google,
Facebook, Spotify, eBay, PayPal, (maybe) Airbnb, etc.

Each of them effectively monopolized something for close to a decade.

It’s not a failed proposition; it just might be harder to pull off in some
spheres than others, and harder as more money gets funneled into startups, and
harder as the giants jump into your newly minted market, or acquire that new
market.

~~~
bpt3
In the winners within your examples (I'm not sure why Spotify and Airbnb are
on that list), the economics around their unit costs were fantastic, because
they aren't selling physical goods or services. That's the main difference
between those companies and WeWork/Uber: There's no way to drive margins low
enough at those companies to justify valuing them like Google.

------
wil421
Side note, is a Bloomberg subscription worth it? I’m looking to get a
subscription and a lot of their articles are great. Especially ones by Matt
Levine.

~~~
nolok
> is a NEWSSITE subscription worth it? [...] a lot of their articles are great

Generally speaking, if you enjoy the content regularly enough please subscribe
to newspapers and the like. News is dying or forced to deface itself to please
ads and pageviews because people don't pay for quality content they like.

~~~
wil421
I’m going to try both Bloomberg’s and NYT’s trial subscriptions and see what I
like. Economist wasn’t that great IMHO.

------
m00dy
then we can say success of a fund does not correlate with its volume

------
anm89
Nothing was stolen. Masa handed him the first ~5 billion after a 10 minute
meeting, no due diligence, no anything.

Then threw more good money after bad. And in the end ended up in a terrible
position beholden to a scam artist.

But that's very different from theft. He essentially took every possible step
to ensure he ended up in this position.

------
atupis
is this a sign of bubble popping? although I am not sure can this spread
outside of Saudis and Softbank.

~~~
jussij
The last decade has seen global monetary policy create a situation where cash
is very cheap (i.e. many central banks are now offering close to zero interest
rates and some have actually seen negative interest rates).

That cheap cash then finds it's way into assets like stocks and housing with
that cheap money putting upward pressure on those assets.

In that same climate we have seen a decade long stagnation in wages, next to
zero inflation and we are now entering a stagnated and slowing global economy.

With those contradictory growth signals, the real question is how long will
that cheap keep flowing, as it is the only stopping those artificial asset
bubbles from popping.

~~~
buboard
Add to that the global "QE" programs which are driving up equities even
higher. This whole system seems to act synergistically now, perpetually
driving stocks higher and higher. Will it collapse altogether (and when)? Who
knows

~~~
jussij
History is full of examples of over priced bubble assets that have eventually
collapsed.

So I don't think the questions is _will it_ collapse but instead _when will
it_ collapse?

~~~
mywittyname
When investors want or need their capital back. Lending is so cheap right now
that it probably makes mores sense to keep borrowing rather than liquidate a
poor investment at a loss. So I think the equities bubble is going to continue
until the lending well runs dry (which could be decades).

------
AzzieElbab
adam neumann should stop by saudi embassy

~~~
dang
Please don't do this here.

~~~
AzzieElbab
You are right

------
rapsey
Vision Fund is probably pretty dead. I can't imagine anyone giving them money
in the future.

~~~
Havoc
Think you'd be surprised.

One bad quarter for a guy that talks about 300 year timescale.

~~~
rcMgD2BwE72F
Who's this guy and where his money come from? If it's based on fossil fuel
revenues seized by autocrats, please explain how his plan can be sustained for
centuries.

~~~
diffeomorphism
"This guy":
[https://en.wikipedia.org/wiki/Masayoshi_Son](https://en.wikipedia.org/wiki/Masayoshi_Son)

> If it's based on

Not really. Son himself got most of his money from investments into Alibaba.

What you are probably referring to is that the Saudis are large investors of
the vision fund. I don't share your optimism that there won't be insanely rich
people with little accountability in the centuries to come.

