Softbank a Japanese holdings firm. It is not a bank. You might know about Softbank because of our recent mentions of the firm here on Geekinsider.
You might also know about the firm because it has helped to fund companies that range from Uber to Doordash and others that you might interact with regularly.
The company is compelling because it has a wide variety of investments in companies that range from Alibaba to T-Mobile and ARM, the semiconductor company. It also counts the Fortress Investment Group as a subsidiary.
While it started out as a telecom company, it is now known for it large Vision Fund and involvement in the growing innovation sector. Softbank reported a loss in recent earnings. Let us take a look at what it is all about and why it matters.
A Small Review on Softbank Losses
We need to have a little bit of context before we look at the massive Softbank loss. The financial environment seems to be turning to the other side. The Federal Reserve of the United States continues to step it up in its monetary tightening efforts.
These efforts include a higher cost to borrow money, making to where investors must judge companies and their future earnings on a different basis. In essence, they must adjust the higher cost of capital, risks, and other aspects into the future prospects of the various firms that they are investing in.
If the earnings outlook seems less compelling, investors must go ahead and trim their positions in these companies and look elsewhere for the right risk-adjusted returns.
Softbank did a large loss of over $20 billion with regard to their investments in these firms. They are not the only one’s who saw a large loss. Other firms that range from Tiger Global to investors who allocated to innovation funds like the ARK ETF have also incurred large drawdowns.
The public innovation sector, or as more cynical investors would call it, a large batch of money losing companies, were the darlings of yesteryear, now they are less appealing in a more expensive world.
Softbank Tracks Up and Coming Technology Companies
Firms like Softbank and Tiger Global may be taking a more conservative approach in the way they invest. At the same time, it is doubtful that these firms will stop investing in new opportunities altogether. Softbank is still working on the third vision fund while being defensive in different positions. For instance, it is selling a portion of shares or reducing exposure in different ways in firms that range from Alibaba to SoFi.
These losses are important because these technology investments have helped to make many investors and company creators very wealthy. This is true for those that participated in the private markets and the public markets. The public market investors may feel a significant sting due to these downturns.
It is not investors themselves that are facing issues, the technology companies themselves are going into defense mode.
Technology companies ranging from Apple to Meta to Google and Tesla to more mid-market companies have noted either hiring freezes, slowdowns in hiring, or employee layoffs. It makes one wonder if these companies are being extremely conservative or if they are confident that tough times are ahead and that it is wise to adjust early on to meet expectations.
They look like they are not waiting around for the correct definition of a recession and seem to make their own calls. Their respective outlook, as evidenced by their actions, indicates a less than stellar near-term future.
What Are Your Thoughts?
Do you think that the job market is strong and that these technology firms will start to bounce back and hire very soon?