One of the most successful venture capital companies is from Japan and is called Softbank. It owns a large stake in technology firms and companies that are disrupting the traditional method of doing things. The company lead by Chief Executive Masayoshi Son success allowed it to raised billions of dollars in its Vision Funds. After COVID hit, one of its higher profile investments in We Work had to be written down. The company offered virtual offices for start up companies and was increasing the space it offered at a rapid rate. Could the company keep very high occupancy rates, there was a concern the founder (who has since left the company) was doing real estate deals and then getting We Work to sign contracts in his office buildings. Virtual offices came at home, but not in a office buildings in downtowns of large cities. It was obvious, the Vision Fund wrote off billions.
In the US, the merger of Sprint and T-Mobile was because of the Vision Fund.
Now it comes to the quarter, the company says we will not disclose operating profit in quarterly results, saying the measure was not useful to gauge performance and tried to highlight a gain in investment assets.
When companies change the method in which they are reporting results, it sends big flags of confusion and signals investors to find a method to exit some or all of your holdings. It is wonderful to invest in a company and it does well, there are no questions what the rules are, how close to the grey area they are and the measurement standards are adhere to and well known. When a company experiences a downturn that is when the true measure of the character of the company is shown. Everyone loves a winner, the cheerleader is good, but results on the field matter. If a company has shown success, it is given latitude to right the ship for the next quarter. When it fudges, the confidence in the company fades and as losses are made, confidence goes fast.
Linking to dividend paying stocks, when you invest in companies which pay dividends there are two basic questions before the rest – is the company profitable? and can it pay its dividend from the profits? If the answer is yes, then as dividend holder you can decided to do nothing for your first concern are the dividends then capital gains. When the company says we have lots of hope, it is time to look for alternatives where hope is a given and reality is profits.
There are more questions than answers, till the next time – to raising questions.