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SoftBank Reveals $6.5B Loss from Uber, WeWork Turmoil

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Re: SoftBank Reveals $6.5B Loss from Uber, WeWork Turmoil

#71

Post by bpt3 »

treis wrote: post #59
Traster wrote: post #9

It seems pretty clear that Softbank were badly misvaluing We and Uber. The second they hit the public markets suddenly Softbank could no longer sustain their paper valuations which is causing this loss. It's kind of funny that Softbank can mark its own homework on this - they buy the company and then because the investment isn't liquid they can basically choose any valuation they want for the companies they own. It'l…

>Softbank were badly misvaluing We and Uber. I don't think these two really belong together. We is probably worth nothing, and even that might be generous. Uber is worth billions with the only real debate being how many billions.

If Uber never figures out how to turn a profit at scale, it'll be worth approximately $0 at some point in the future.

Re: SoftBank Reveals $6.5B Loss from Uber, WeWork Turmoil

#72

Post by bpt3 »

thrav wrote: post #68
KoftaBob wrote: post #65

It's like these investors never learn that the "our unit economics are horrible, but it'll be worth it when/if we become a monopoly!" philosophy rarely plays out well. The same industry that harps on about how disruptable old school monopolies are, is somehow buying into that? I don't get it.

I mean, the strategy has created all of the biggest winners: Amazon, Google, Facebook, Spotify, eBay, PayPal, (maybe) Airbnb, etc. Each of them effectively monopolized something for close to a decade. It’s not a failed proposition; it just might be harder to pull off in some spheres than others, and harder as more money gets funneled into startups, and harder as the giants jump into your newly minted market, or acqui…

In the winners within your examples (I'm not sure why Spotify and Airbnb are on that list), the economics around their unit costs were fantastic, because they aren't selling physical goods or services. That's the main difference between those companies and WeWork/Uber: There's no way to drive margins low enough at those companies to justify valuing them like Google.

Re: SoftBank Reveals $6.5B Loss from Uber, WeWork Turmoil

#73

Post by levthedev »

dentemple wrote: post #69
treis wrote: post #59

Earlier quoted context omitted.

>Softbank were badly misvaluing We and Uber. I don't think these two really belong together. We is probably worth nothing, and even that might be generous. Uber is worth billions with the only real debate being how many billions.

WeWork has actual real-estate assets. So, they do have some worth. Certainly not Softbank's valuation-levels of worth, but it's still not nothing.

WeWork, for the most part, does not own actual real-estate assets. They mostly have actual real-estate liabilities - leases.

They do own a relatively small amount of property, like their partial ownership of the Lord and Taylor building, which for reference is now considered a huge mistake (it's bleeding money).

Re: SoftBank Reveals $6.5B Loss from Uber, WeWork Turmoil

#74

Post by wjnc »

SeanAppleby wrote: post #51
wjnc wrote: post #46

Earlier quoted context omitted.

To agree with this. As someone with more of a general economic and metrics background, I was quite amazed when I first learned of the breadth of possible valuation methods IFRS (International Financial Reporting Standards) allows for. Some are pretty close to what you'd expect for the valuation of a financial instrument (after all, equity is one of those), while some are 'pretty far away'.

Are you allowed to switch between them at will, or is there a legal inertia that pushes you to continue reporting using the same one?

We would need an accountant for a proper answer to that question. My perception is that they look at changes more carefully than at continuing practices and that material changes above a certain threshold need to be mentioned in the yearly report. So the effect clearly is inertia, which I would feel is a plus.

Re: SoftBank Reveals $6.5B Loss from Uber, WeWork Turmoil

#75

Post by Havoc »

tasssko wrote: post #17
Havoc wrote: post #5

Earlier quoted context omitted.

Think you'd be surprised. One bad quarter for a guy that talks about 300 year timescale.

In my view 300 year timescale and technology investments are antithetical.

Not if the initial thesis is correct - which I think it is in this case.

If you corner a market space that is key for future tech then it'll be very difficult for anyone else to catch up - even if tech moves forward.

Re: SoftBank Reveals $6.5B Loss from Uber, WeWork Turmoil

#76

Post by anm89 »

Nothing was stolen. Masa handed him the first ~5 billion after a 10 minute meeting, no due diligence, no anything.

Then threw more good money after bad. And in the end ended up in a terrible position beholden to a scam artist.

But that's very different from theft. He essentially took every possible step to ensure he ended up in this position.

Re: SoftBank Reveals $6.5B Loss from Uber, WeWork Turmoil

#77

Post by Havoc »

wjnc wrote: post #46
cs702 wrote: post #39

$6.5B is the recognized loss, i.e., the lowest possible amount they can get away writing off on their accounting books. The real economic loss may be much higher.

To agree with this. As someone with more of a general economic and metrics background, I was quite amazed when I first learned of the breadth of possible valuation methods IFRS (International Financial Reporting Standards) allows for. Some are pretty close to what you'd expect for the valuation of a financial instrument (after all, equity is one of those), while some are 'pretty far away'.

>I was quite amazed when I first learned of the breadth of possible valuation methods IFRS (International Financial Reporting Standards) allows for.

Think that's a bit of a misunderstanding of what's going on. IFRS doesn't deal with valuation methods per se. It's a principles driven set of standards. In this case that's "fair value". The valuation method would be driven by something like IPEV

http://www.privateequityvaluation.com/Portals/0/Documents/Gu...

Re: SoftBank Reveals $6.5B Loss from Uber, WeWork Turmoil

#78

Post by rdlecler1 »

cs702 wrote: post #39

$6.5B is the recognized loss, i.e., the lowest possible amount they can get away writing off on their accounting books. The real economic loss may be much higher.

The real economic gain may be much larger. It’s only a realized loss if they sell now.

Re: SoftBank Reveals $6.5B Loss from Uber, WeWork Turmoil

#79

Post by wjnc »

Havoc wrote: post #77
wjnc wrote: post #46

Earlier quoted context omitted.

To agree with this. As someone with more of a general economic and metrics background, I was quite amazed when I first learned of the breadth of possible valuation methods IFRS (International Financial Reporting Standards) allows for. Some are pretty close to what you'd expect for the valuation of a financial instrument (after all, equity is one of those), while some are 'pretty far away'.

>I was quite amazed when I first learned of the breadth of possible valuation methods IFRS (International Financial Reporting Standards) allows for. Think that's a bit of a misunderstanding of what's going on. IFRS doesn't deal with valuation methods per se. It's a principles driven set of standards. In this case that's "fair value". The valuation method would be driven by something like IPEV http://www.privateequity…

Great link, thanks. I do think I got the jist of it right? Fundamentally, a company proposes a method and the accountant, when applicable, under IFRS, allows for the method to be used when he signs the financial report.

From my (risk management) perspective and in an environment where it's usually mark-to-market and mark-to-quite-sophisticated-model, I just had to blink a few times when I learned that things like the net assets-approach (why is that even an approach) exist. I do understand that in the cases I see there would be materially no difference for the investor (small investments, large firm) when using a more advanced approach like DCF (which still hinges on a few key assumptions).

Re: SoftBank Reveals $6.5B Loss from Uber, WeWork Turmoil

#80

Post by Havoc »

wjnc wrote: post #79
Havoc wrote: post #77

Earlier quoted context omitted.

>I was quite amazed when I first learned of the breadth of possible valuation methods IFRS (International Financial Reporting Standards) allows for. Think that's a bit of a misunderstanding of what's going on. IFRS doesn't deal with valuation methods per se. It's a principles driven set of standards. In this case that's "fair value". The valuation method would be driven by something like IPEV http://www.privateequity…

Great link, thanks. I do think I got the jist of it right? Fundamentally, a company proposes a method and the accountant, when applicable, under IFRS, allows for the method to be used when he signs the financial report. From my (risk management) perspective and in an environment where it's usually mark-to-market and mark-to-quite-sophisticated-model, I just had to blink a few times when I learned that things like the…

Yeah mostly. It's a complicated area frankly.

Company, accountant, valuation committee, valuation team, investment advisor and possibly external administrator all sorta play for the same team. They collaborate to get to an approach and a number. Then the auditors roll in and check whether they think the approach is reasonable, assumptions are reasonable and calc was done right. If they don't like it they might force a change.

What's acceptable driven more by industry specific norm than anything hardcoded. So I might be looking at two similar debt contracts but do something wildly different because the one is back by real estate deeper in the structure while the other is part of a private equity structure.

Not really something an outsider can easily look into - cause it's often in the context of a interlocking web of controls - that again differ by entity/sector.

DCF - yes, though more complex isn't necessarily more accurate. In fact I dislike it because it's so easy to manipulate & difficult to call bullshit on.

>net assets-approach (why is that even an approach)

It depends on what in it basically & how those in turn were valued. Plus nature of the entity - for income/cash generating entities you do something like DCF or EBITDA peer multiple instead.

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