WeWork Investor Juiced Nasdaq Bubble Rally With Call Options Before Sharp Dip

Written by Dana Sanchez
WeWork investor
WeWork investor SoftBank’s shares wiped out more than $12 billion in market value this week amid nervousness over the Japanese conglomerate’s latest tech investing strategy. Softbank Corp. CEO Masayoshi Son attends a press conference in Japan, June 18, 2015. (AP Photo/Shizuo Kambayashi)

WeWork investor SoftBank’s shares wiped out more than $12 billion in market value this week amid nervousness over the Japanese conglomerate’s latest tech investing strategy.

Shares in SoftBank fell today alone as much as 7 percent in Tokyo.

A Financial Times report on Friday suggested that SoftBank was the mystery “Nasdaq whale” buying billions of dollars in call options — which bet on stocks rising, CNBC reported.

SoftBank’s market cap went down from $124.4 billion to $112.1 billion over the course of three sessions.

Financial Times quoted a source saying SoftBank had been buying options in Tesla, Amazon, Microsoft and Netflix, potentially driving up valuations in the tech sector.

Last week, tech saw a reversal amid fears that valuations had reached unsustainable levels. The tech-heavy Nasdaq Composite fell 10 percent in three days.

News of SoftBank’s big U.S. tech bets came as a surprise to investors, suggesting a shift in strategy towards that of a hedge fund, MSNBC reported. SoftBank has a reputation for multi-billion-dollar bets on startups that don’t turn a profit such as WeWork, Uber and DoorDash.

In August, SoftBank CEO Masayoshi Son set up an asset management division to buy stocks in publicly-traded companies. The gamble on stock options came as a “huge surprise” to investors, according to Neil Campling, head of TMT research at Mirabaud Securities. 

“It’s one thing doing that for a hedge fund, but SoftBank is not a hedge fund and is not supposed to be a hedge fund, so that’s why I think the stock has seen pressure this week so far,” Campling told CNBC on Tuesday. “I think what the market’s telling you is that the strategy is at odds with the communication from the company.”

SoftBank shareholders want the company to reveal who is running its asset management unit. Founder Masayoshi Son drove the decisions behind the trades, people with direct knowledge of the matter told the Financial Times.

“The idea that Son is taking a kind of personal interest in the micromanagement of a hedge fund is a bit crazy when he’s also the head of a huge company,” a person told the Times anonymously.

SoftBank’s aggressive foray into U.S. equity options has generated confusion about what this in-house hedge fund is doing and how much risk it is willing to assume, FT reported.

Apart from the SoftBank’s huge stake in Chinese e-commerce giant Alibaba, asset managers generally were not invested in SoftBank because they wanted exposure to listed stocks they could easily buy themselves, the person told FT.

Almost a year ago, WeWork agreed be bailed out by SoftBank in a deal that would value the co-working-space giant between $7.5 billion and $8 billion, CNBC reported in October 2019.

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Despite losses of almost $1 billion in the first six months of 2019, WeWork still managed to score a $47 billion valuation last year ahead of an anticipated IPO. The IPO failed to materialize after investors raised questions about WeWork’s leadership and business model.

Big Tech companies made monster gains in recent months. Some investors bet on tech stock profits as the pandemic rages on, betting that people will be using their devices more than ever while working and playing online at home.

Investors question the justification for steep tech company valuations, and market watchers have been asking if another stock market crash is coming in 2020.