Uber is biggest loser as SoftBank counts IPO returns

Monitors display Uber Technologies Inc. signage in front of Morgan Stanley headquarters in New York, U.S., on Friday, April 26, 2019. Photographer: Michael Nagle/Bloomberg

SoftBank Group Corp.’s masterful late-stage investment in Uber Technologies Inc. is seen as proof of the power of Masayoshi Son’s fat checkbook.

The ride-hailing company’s US listing, however, has now become among the biggest weights around the neck of the SoftBank Vision Fund, according to data it released Wednesday. While SoftBank posted a solid increase in net income, most of that came from a one-time gain from its direct stake in Alibaba Group Holding Ltd.

At the Vision Fund, unrealized losses totaling 195 billion yen ($1.84 billion) were recorded during the quarter ending June 30, attributable to decreases in the fair value of Uber and other investments. SoftBank Group is a major investor in the Vision Fund and records gains and losses in the fund on a quarterly basis.

When Uber listed in New York on May 9, it was seen as one of Son’s greatest triumphs after he wrestled his way into the company a little more than a year before the IPO. The stock is down 13% since then. But things could get worse because it has actually dropped 16% since June 30, when it would have last done its quarterly valuation.

The trouble doesn’t end there. Slack Technologies Inc., an enterprise-software company that started trading on June 19 (through a non-IPO listing), climbed 44% from that date to the end of June. This helped the fund post a 604 billion yen ($5.7 billion ) unrealized gain in the fair value of investments. But Slack is down 18% so far this quarter, as of the close on Tuesday. If investors don’t warm to Slack in the next six weeks, then SoftBank and its Vision Fund are set to bear the downside when it tallies up at the end of September.

This is a trend investors in SoftBank will need to keep an eye on. Slack had an operating loss of $154 million last year while Uber’s was $3 billion. While venture capitalists like the Vision Fund are all too happy to invest in big unprofitable businesses with the promise of future growth, such as Uber and Slack, public shareholders are likely to be a little more discerning. What’s more, doubts remain that Uber and its rival Lyft Inc. even have a path to profitability.

A bright spot could be OYO, the Indian-room booking company whose full name is Oravel Stays Private Limited. SoftBank’s filing didn’t specify how much of the unrealized gains came from OYO, merely naming that company alongside Slack and food delivery company DoorDash Inc. as contributors.

However, there are hints elsewhere in the filing. SoftBank Vision Fund investments in consumer business, which include OYO and ByteDance Technology Co., have posted gains of $4.7 billion from the $15.9 billion in total increases in the value of all its holdings. Slack is counted in the enterprise category while DoorDash is among the companies it labels transportation alongside Uber and Grab.

Since gains in private company valuations tend to come only after funding rounds, we’re likely to see few chances for its OYO stake to keep adding to the Vision Fund’s paper profits. This means that Son needs not only to keep hunting unicorns, but find ways for his existing stable to get a valuation boost. SoftBank’s bottom line depends on it.

Bloomberg