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SoftBank Group reports $5.9 bn third-quarter loss on tech slump

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SoftBank Group has made huge bets to find and grow hot new tech ventures but its exposure to so many tech firms has left its earnings vulnerable to fickle market forces
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Japan’s SoftBank Group on Tuesday reported a surprise $5.9 billion net loss in the third quarter, as a slump in the tech sector continued to hit the investment behemoth’s bottom line.

The loss compared with the net profit of 29.0 billion yen ($219 million) the firm reported in the same three-month period last year.

Its two Vision Fund investment vehicles alone lost 660 billion yen ($5 billion) in October-December, “reflecting declines in the share prices of a wide range of portfolio companies”, SoftBank said.

The firm has made huge bets to find and grow hot new tech ventures around the world, but that has left its earnings vulnerable to fickle market forces, and its Vision Funds have reported losses for four straight quarters.

Interest rate hikes by the US Federal Reserve and other central banks to tackle inflation have weighed on global tech shares, putting pressure on SoftBank.

Its results have lurched between dizzying highs and lows in recent years, with China’s crackdown on its tech sector taking a toll on the company.

Second-quarter earnings were boosted by the sale of some shares in Alibaba as it reduced its stake to around 15 percent from 24 percent.

But it reported a record quarterly net loss for the first quarter, as tech shares tanked on interest rate hikes, a trend analysts said was likely to continue.

“Weakness in global equity markets remains the main risk to the SoftBank story,” said Kirk Boodry, an analyst at Redex Research who publishes on SmartKarma.

SoftBank CEO Masayoshi Son has regularly defended his strategy of making major bets on high-tech firms and start-ups, insisting that the approach will lead to a handful of significant wins that outweigh losses.

But his tactics have come under increasing scrutiny given the firm’s successive losses, and Son will no longer deliver the company’s results presentation.

– ‘Very tough’ –

His unusual presentation style, complete with images of unicorns riding over troughs, have been a staple of SoftBank’s quarterly results.

On Tuesday, however, his chief financial officer Yoshimitsu Goto is expected to do the talking instead, and faces explaining losses in firms like DoorDash.

Last quarter, he warned “we are very pessimistic”.

“We could make a lot of money if we knew when (share prices) will recover, but honestly, we don’t know,” Goto said.

Analysts said there was good reason to be cautious.

“The overall investment environment is very tough including on US shares,” Hideki Yasuda, an analyst at Toyo Securities, told AFP before the results.

But he and other observers think the firm could start to see the benefits of an improving situation in China.

“We are generally somewhat negative on Softbank’s positioning heading into 2023 with concerns on tech valuation at the forefront,” wrote Redex’s Broody.

“But a recovery in China… provides some support,” he added, noting that Beijing’s crackdown on tech firms and its anti-Covid policies “both appear to be leveling out”.

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Threat of US ban surges after TikTok lambasted in Congress

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A US TikTok ban will depend on passage of legislation called the RESTRICT ACT, a bipartisan bill introduced in the Senate this month
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A US ban of Chinese-owned TikTok, the country’s most popular social media for young people, seems increasingly inevitable a day after the brutal grilling of its CEO by Washington lawmakers from across the political divide.

But the Biden administration will have to move carefully in denying 150 million young Americans their favorite platform over its links to China, especially after a previous effort by then president Donald Trump was struck down by a US court.

TikTok CEO Shou Zi Chew endured a barrage of questions — and was often harshly cut off — by US lawmakers who made their belief quite clear that the app best known for sharing jokes and dance routines was a threat to US national security as well as being a danger to mental health.

In a tweet, TikTok executive Vanessa Pappas deplored a hearing “rooted in xenophobia”.  

With both Republicans and Democrats against him at Congress, Chew must now confront a White House ultimatum that TikTok either sever ties with ByteDance, its China-based owners, or get banned in America.

A ban will depend on passage of legislation called the RESTRICT ACT, a bipartisan bill introduced in the Senate this month that gives the US Commerce Department powers to ban foreign technology that threatens national security.

When asked about Chew’s tumultuous hearing, spokeswoman Karine Jean-Pierre repeated the White House’s support of the legislation, which is just one of several proposals by Congress to ban or squeeze TikTok.

– ‘Prove a negative’ –

The sell-or-get banned order tears up 2.5 years of negotiations between the White House and Tiktok to find a way for the company to keep running under its current ownership while satisfying national security concerns.

Those talks resulted in a proposal by TikTok called Project Texas in which the personal data of US users stays in the United States and would be inaccessible to Chinese law or oversight.

But the White House turned sour on the idea after officials from the FBI and the Justice Department said that the vulnerabilities to China would remain.

“It’s hard for TikTok to prove a negative ‘No, we’re not turning over any data to the Chinese government.’ Look at how skeptical our European partners are about US companies where we have a strong legal system,” said Michael Daniel, executive director of the Cyber Threat Alliance, a non-governmental organization dedicated to cybersecurity.

Presently, the White House’s preferred solution is that TikTok sever ties with ByteDance either through a sale or a spin-off.

“My understanding is that what has been… insisted on is the divestment of Tiktok by the parent company,” US Secretary of State Antony Blinken said on Thursday.

But that option is riddled with difficulties, with many experts saying that Tiktok cannot function without ByteDance, which develops the app’s industry-leading technology.

“ByteDance’s ownership of TikTok and the golden jewel algorithm at the center of this security debate is a hot button issue that will not necessarily be solved just by a spin-off or sale of the assets,” said Dan Ives of Wedbush Securities.

Proving the point, China has ruled out giving the go-ahead for a TikTok sale, citing its own laws to protect sensitive technology from foreign buyers.

That leaves a ban which would see the full might of the US government crush TikTok to the undeniable benefit of domestic rivals Instagram, Snapchat and YouTube.

They currently trail TikTok, which is the most popular social media in the United States.

– Snapchat wins –

TikTok’s demise “will clearly benefit Meta and Snapchat front and center in the eyes of Wall Street,” said Ives, who believes the saga will play out for the rest of the year.

One unknown is whether a death sentence for TikTok will cost Washington politically among young voters.

Through a ban, “a democracy will be taking steps that impede the ability of young Americans to express themselves and earn a livelihood,” said Sarah Kreps, professor of government at Cornell University.

The lawmakers putting the Tiktok CEO over the coals minimized the danger of political blowback.

“I want to say this to all the teenagers… who think we’re just old and out of touch,” said representative Dan Crenshaw, a Republican. 

“You may not care that your data is being accessed now, but there will be one day when you do care about it,” he said.

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US state to require parental consent for social media

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The western US state of Utah will require social media sites to gain parental consent for minors' accounts beginning in March 2024
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Utah on Thursday became the first US state to require social media sites to get parental consent for accounts used by under-18s, placing the burden on platforms like Instagram and TikTok to verify the age of their users.

The law, which takes effect March 2024, was brought in response to fears over growing youth addiction to social media, and to security risks such as online bullying, exploitation, and collection of children’s personal data.

But it has prompted warnings from tech firms and civil liberties groups that it could curtail access to online resources for marginalized teens, and have far-reaching implications for free speech.

“We’re no longer willing to let social media companies continue to harm the mental health of our youth,” tweeted Spencer Cox, governor of the western US state, who signed two related bills at a ceremony Thursday.

The bills also require social media firms to grant parents full access to their children’s accounts, and to create a default “curfew” blocking overnight access to children’s accounts. 

They set out fines for social media companies if they target users under 18 with “addictive algorithms,” and make it easier for parents to sue social media companies for financial, physical or emotional harm.

“We hope that this is just the first step in many bills that we’ll see across the nation, and hopefully taken on by the federal government,” said state representative Jordan Teuscher, who co-sponsored the bill.

Michael McKell, a Republican member of Utah’s Senate who also sponsored the bill, said it was a “bipartisan” effort, and praised President Joe Biden’s recent State of the Union address, in which he raised the issue.

Biden last month called on US lawmakers to restrict how social media companies advertise to children and collect their data, as he accused Big Tech of conducting a “for profit” experiment on the nation’s youth.

California has already introduced online safety laws including strict default privacy settings for minors, but the Utah law goes further.

Lawmakers in states such as Ohio and Connecticut are working on similar bills.

Platforms including Instagram and TikTok have introduced more controls for parents, such as messaging limits and time caps.

At Thursday’s ceremony in Utah, McKell pointed to data from the federal Centers for Disease Control and Prevention which he said highlighted the toll social media apps can have on young minds.

“The impact on our daughters — and I have two daughters — it was incredibly troubling,” he said. 

“Thirty percent of our daughters from ninth grade to 12th grade had seriously contemplated suicide. That’s startling.”

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Google opens chatbot Bard for testing in US and UK

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Google has been scrambling to counter the threat posed to its money-making online search engine by Microsoft blazing ahead with the addition of generative artificial intelligence technology into its rival Bing
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Google on Tuesday invited people in the United States and Britain to test its AI chatbot, known as Bard, as it scrambles to catch up with Microsoft-backed ChatGPT.

Bard, ChatGPT and other similar apps churn out essays, poems or computing code on command, though they come with warnings that the information they create can be incorrect or inappropriate.

People wishing to play with Bard can sign up on a waiting list at bard.google.com website, distinctly separate from the tech giant’s search engine.

Google CEO Sundar Pichai said in a tweet that the move is an “early experiment” allowing people to collaborate with generative artificial intelligence (AI).

“We’ve learned a lot so far by testing Bard, and the next critical step in improving it is to get feedback from more people,” Google vice presidents Sissie Hsiao and Eli Collins said in a blog post.

“We continue to see that the more people use them, the better LLMs (large language models) get at predicting what responses might be helpful.”

As exciting as chatbots are, they have their faults, Hsiao and Collins cautioned.

They can incorporate real-world biases, stereotypes or inaccuracies in responses, according to the vice presidents.

Google has adopted a more cautious rollout of generative AI in contrast to Microsoft that has chosen to swiftly make the products available to consumers despite reports of problems.

ChatGPT’s OpenAI is backed by Microsoft, which earlier this year said it would finance the research company to the tune of billions of dollars.

OpenAI recently released a long-awaited update of its AI technology that it said would be safer and more accurate than its predecessor.

Much of the new model’s firepower is now available to the general public via ChatGPT Plus, OpenAI’s paid subscription plan and on an AI-powered version of Microsoft’s Bing search engine.

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