The hits keep on coming.
- SoftBank’s biggest problem following on from WeWork is that every one of its investments that go wrong or have problems will receive intense press attention and scrutiny.
- The reality is that while SoftBank still has some hits to take as a result of overpaying and investing too much, I think the worst is over.
- The two most recent events are:
- First, OYO has announced 5,000 job cuts which it is conveniently blaming on a slow down in its business due to the coronavirus.
- OYO is an Indian budget hotel chain that likens itself to the Uber or Ola of hotels.
- In practice, it is a marketplace where small hotels can list their rooms under the OYO brand giving those looking for a place to stay a single place to look.
- OYO also operates some of its own properties such as the OYO Hotel in Las Vegas which until recently was known as Hooters Hotel and has been rebranded by draping canvas over the old signs.
- In exactly the same way as ride-hailing, bike-sharing and food delivery, the company has spent large sums of money to attract hotels and guests to the site resulting in high growth but heavy losses at the same time.
- Unfortunately, following on from the embarrassing WeWork meltdown, SoftBank has been forced to put pressure on its other portfolio companies to stem cash outflows.
- OYO is using the cover of the coronavirus to make the cuts, but the reality remains that this business was given too much money and expanded far too quickly and must now pay the price.
- I suspect that SoftBank will need to write this done as well.
- Second, Improbable worlds: which raised $500m from SoftBank in 2017 and was valued at $2bn when it entered into an alliance with Chinese gaming company NetEase in 2018.
- Improbable Worlds is a cloud-based platform that specialises in the creation of multiplayer role-playing games.
- The problem is that there is plenty of competition in this area with well-established players like Epic Games and very well-financed newcomers like Amazon Game studios.
- Furthermore, Improbable has yet to have a major game developed using its technology which led to just £1.2m in revenues in the year to May 2019 and over £60m in losses.
- Improbable is making acquisitions to try and broaden its appeal and win over customers but progress remains slow.
- However, the good news is that the company has not gone crazy with all the money that it raised from Softbank as it still had $455m in its bank account as of May 2019.
- This buys the company a lot of time to push its proposition meaning that it may yet come good.
- SoftBank remains in a very difficult position as it is now paying the price for its irrational exuberance over the last few years.
- This going to continue to include intense press scrutiny whenever anything goes wrong, but I am inclined to think that the worst is over.
- There are more write-downs to come and its IPO of DoorDash is unlikely to succeed (see here) but this now well within the realms of market expectations.
- I don’t think that there will be a Vision Fund II for some considerable time as the fear-of-missing-out has clearly evaporated from would-be investors.
- Mr Son wants to keep investing but I think that he would be best suited sorting out what already has and fixing his investing process which is clearly flawed.
- It is at this point he can credibly return to investing.
