The man most responsible for driving WeWork's valuation close to $50B has offered a mea culpa — and promised a turnaround.
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SoftBank Group CEO Masayoshi Son said that he exercised "really bad judgment" in pouring money into WeWork while missing warning signs about co-founder and former CEO Adam Neumann's management of the company, The Wall Street Journal reports. Son made the remarks at a news conference in Tokyo, where he took responsibility for SoftBank's dismal Q3 performance.
SoftBank Vision Fund, the Japanese bank's technology investment vehicle, posted a net operating loss of $9B in the quarter, the first time in the fund's history that it has posted a loss of any kind, the WSJ reports. The Vision Fund wrote down the value of its stake in WeWork by $3.5B, while SoftBank itself wrote down its share's value by $4.7B.
After realizing the myriad corporate governance issues that doomed WeWork's initial public offering, Son said that he consulted with lawyers to see if he could rescind a promised $1.5B investment set to come due in 2020, Bloomberg reports. When told that he was not allowed, Son took a different tack, investing an additional $8B to take control of the company — and sideline Neumann. Son said at the conference that the investment was in order to decrease the price per share of SoftBank's ownership.
The Vision Fund also wrote down its stake in Uber and 20 other companies in which it has invested, compounding its Q3 losses. But if those entities are expecting a WeWork-style bailout, they shouldn't hold their breath, Son said at the news conference, according to Bloomberg.
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Son said that the WeWork deal was the "last one" SoftBank would execute to save its investments. Going forward, a top priority in any investments from SoftBank or its anticipated second Vision Fund will be cash flow, Bloomberg reports.
But if Son is chastened by the implosion of his investment, he isn't acting like it, promising at the same conference that turning WeWork into a profitable company would be "simple," Bloomberg reports. First on Son's priority list is slashing costs and excising non-moneymaking lines of business, though he reportedly declined to provide specifics.
One likely method of cost-cutting will be layoffs, which WeWork has signaled as imminent in Europe. It may also shrink or back out of some leases, with Bloomberg reporting that at least six WeWorks in Hong Kong are candidates for giving back floors. The company has already reportedly begun scuttling further deals that were already in negotiations, and some landlords say they have already begun preparing for it to give back leased space.
A major part of WeWork's path to profitability, Son said, will be natural growth from the locations that have recently opened but so far have not had successful lease-ups. Son said those locations are just like fruit on a tree that needs to "ripen," Bloomberg reports, claiming that the company's Japanese business is already turning a profit to bolster his position.
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