Company dilemmas, Elon's Twitter takeover, Masayoshi Son's rise to the top
Softbank's founder loves risk and it makes for a fascinating tale
Hi,
This week, I read about the dilemma companies face when forced to choose between sustainability and profits and Elon Musk’s takeover of Twitter.
I also wrote a story detailing the rags to riches story of Masayoshi Son, founder of Softbank, who lost $70 billion in the dot-com crash but is now worth $15 billion.
So let’s get started.
Should companies focus on sustainability or long-term profitability?
The answer is not clear cut. Profitability might come at the cost of harm to the planet. So, should management primarily focus on sustainability? There are consequences from expecting companies to shoulder the burden of social responsibility,
Some of the consequences are,
It might not be in the shareholders’ interest to pursue ESG objectives as the benefits might be reaped in the future while the cost of planting the seeds is now.
Because the term is ambiguous, a classic management tactic is to sweep away poor performance by hyping up a company’s sustainability agenda.
Should powerful CEO’s, such as Larry Fink of Blackrock, oversee the agenda or should policy makers who understand the tradeoff associated between saving the plant v/s the livelihoods that are impacted by the fossil fuel industry be in charge?
Or should shareholders oversee how their capital is deployed?
Read it here→ Global Policy Watch: Who’s Afraid Of Stakeholder Capitalism?
Elon Musk buys Twitter
There are conflicting opinions on how this purchase is going to affect the experience on Twitter.
Twitter for me is where I can discover other users’ thoughts, ideas and creativity. It is the “town square”. But with a billionaire buying the company how will the app change?
As per Wired- Elon Musk’s Twitter Buy Exposes a Privacy Minefield
Jeff Bezos pondered whether the Chinese government will gain leverage over Twitter.
Interesting question. Did the Chinese government just gain a bit of leverage over the town square?Apropos of something: -Tesla's second-biggest market in 2021 was China (after the US) -Chinese battery makers are major suppliers for Tesla's EVs. -After 2009, when China banned Twitter, the government there had almost no leverage over the platform -That may have just changedMike Forsythe 傅才德 @PekingMikeTwitter has been banned in China since 2009, so the platform is free to host criticism of the Chinese government. Other American businesses with commercial ties to China, such as Hollywood, basketball, etc. — often face repercussions from CCP and therefore are careful to not anger China.
Musk runs Tesla which has deep commercial ties with China, where it makes and sells cars. Tesla makes up the bulk of Musk’s net worth.
Now he owns Twitter, criticism of China on Twitter could become a problem. He might face pressure to censor critics of China on Twitter.
Jack Dorsey, Twitter’s founder is happy with the sale. Read his tweet thread here,
Musk has emphasized his intention to open-source Twitter’s algorithm. What does that mean?
As per Hamza Mudassir writing in The Conversation,
Open-source algorithms would eventually enable users to choose not just what they see and don’t see on the platform, but how that happens. In such a future, one user might choose a right-leaning algorithm while the other chooses a left-leaning one.
In my opinion, there will be some pros such as the platform becoming agents of the users instead of advertisers. But, as the regulations of a public company are removed there will be less oversight on such an important public app. The users would be forced to accept the whims and definition of “freedom of speech” that is acceptable to the world’s richest man.
Masayoshi Son’s love affair with risk
From losing $70 billion in the dot com crash to being ranked 113th in the Billionaires Index today.
Here is Masayoshi Son's love affair with risk,
Born in Japan, to a Korean immigrant family, at a time when Koreans were treated as unwanted citizens,
Son recalls being pelted with stones in grade school by Japanese classmates.
His family's financial situation was so dire, that Son shared space with pigs and sheep.
Things improved when following advice from his idol, McDonald's Japan founder Den Fujita, Son moved to U.S. to study.
Juggling studies & work, Son made his first million by inventing a pocket language translator.
He made his next million by importing & leasing video games.
In 1980 Son graduated & moved to Japan to start Softbank,
He had a vision, he told his 2 part-time employees,
“In 5 years, I’m going to have $75 mn in sales, I will be supplying 1,000 dealer outlets, and we’ll be number 1 in PC software distribution.”
With little experience but with great drive he landed clients by promising,
"I will dedicate all my time and effort, all my energy, my entire spirit to PC software only"
He exceeded his expectations, in 1994 Softbank went public netting him $1.5bn.
In 1999 he invested $20 mn in a nascent Alibaba,
"We didn't talk about revenue; we didn't even talk about a business model," says Jack Ma, referring to Son "We just talked about a shared vision"
Son's vision & belief that his bets will be in the green led him to take risks,
At its peak in 2000,
Softbank had a $184 billion market cap,
An investment empire that included a major Japanese bank, Nasdaq Japan stock exchange, Yahoo! & a galaxy of 1,000 start-ups.
Son's net worth was surging by $10 billion a week,
For 3 days, he was the richest man in the world,
Then came the dot-com crash.
Softbank shares fell, they were trading at 2% of their peak value by the end of 2000.
Son lost $70 billion. Yikes!
One of the bubbles of the dot-com era, was the online grocery service Webvan.
Webvan burned through $830 million to acquire customers and further raised $375 mn in an IPO,
24 months after its first order, Webvan filed for bankruptcy.
Softbank invested and lost $160 million.
Son was down but not out,
The maverick believed in the Internet economy.
His next bet was offering dirt cheap high-speed internet.
But it was an uphill battle
He challenged the monopoly of the government backed NTT. Forcing deregulation, paving the way for competition.
He had to exit profitable investments in Yahoo! to fund the costs of leasing the telecom fibers.
The gambit caused SoftBank losses for several years,
But ultimately, it turned a profit, bringing affordable internet access to Japan to this day.
In 2006, Softbank bought the Japanese arm of Vodafone for $15 billion, acquiring 16 million mobile subscribers,
The deal relied heavily on bank financing,
Making it one of Japan's biggest ever leveraged buyouts.
Next up, via Son's friendship with Steve Jobs, he secured an exclusive deal to sell iPhones in 2008.
By 2012, the triple punch of, internet service + telecom carrier + cellphone provider, led to Softbank having sustainable recurring revenue to make further investments.
Despite losing 70bn in the crash what keeps him winning is,
🔸 Confidence & ability to articulate his vision to get loans.
🔸 Swashbuckling gambler attitude having a 300 year time horizon. He is bedfellows with volatility.
🔸 Power to leverage relationships to raise capital.
His outlook hasn't changed over the decades,
Don't be stingy while investing in tech players who have the potential to disrupt.
Sometimes the investments backfire,
WeWork, OYO, Greensill Capital, WirecardAG, Zume, OneWeb
Some provide stellar returns,
Alibaba, ARM, Coupang
Son often values startups at insane multiples,
In the case of OYO, in 2019 Son wrote a personal guarantee of $2 billion,
Loaning the sum to the 25-yr old founder to buy back shares in OYO,
OYO’s valuation skyrocketed to $10 bn, making it immensely valuable to SoftBank’s portfolio.
There are 3 pros to boosting paper valuations this way
Softbank can avail more loans by pledging assets in exchange for cash to keep investing.
Son has personal loans tied to company stock which fund his lifestyle & investments.
It blocks rivals from investing.
But it comes with risks -
Today OYO is considering halving its expected valuation to $6 billion and shelving its proposed IPO.
Ouch!
All but 3 of the 23 Softbank portfolio stocks that listed in 2021 have fallen below their initial public offering prices,
The market for new share sales, critical to SoftBank’s success, has dried up
From China’s tech crackdown to Russia’s invasion of Ukraine, & rising inflation, a litany of troubles has beset Son & his conglomerate,
Son’s fortune has crashed $25 billion in the past year,
But he still ranks 113th in the Bloomberg Billionaires Index.
Time will tell whether his bets will be profitable,
Else we are the fools who invested billions with the man who lost the most money in the world.
Son remains optimistic,
“We will see a spring sooner or later, and we keep sowing seeds. Steadily, the seeds are growing”
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I hope you enjoyed this edition of Filtered Kapi. Do let me know if something struck a chord with you.
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