Company / Analytics

Analytics, 11 August 2021

Charting Softbank Earning

Softbank, the world’s biggest tech investor saw the value of some of its investments sink during the April-June quarter as the tech rally cooled off.

The Japanese conglomerate is best known for its $100 billion Vision Fund, which has invested in tech companies including (more recently) Coupang Inc., a Korean e-commerce company that listed in March, Auto1 Group, a German online used-car dealer that went public in February, Chinese ride-sharing leader Didi Global Inc., and its biggest asset holding e-commerce giant Alibaba Group.

Softbank posted a 39% decline in first-quarter net profit reported Tuesday, showing that headwinds are rising for the world’s biggest tech investor.

Softbank Profit falls as tech rally cools off

SoftBank Group reported a decline in the value of many of its investment holdings sent its profits lower during the latest quarter. The Japanese conglomerate reported a net profit of ¥761.5 billion, equivalent to $6.9 billion, for the quarter ended June. That was lower than the year-ago figure and a fraction of the record-setting January-March quarter when the company rode booming stock markets to multibillion-dollar gains on its investments.

The value of some of Softbank’s investments sank during the April-June quarter, including those of Coupang Inc., a Korean e-commerce company that was listed in March, and Auto1 Group, a German online used-car dealer that went public in February.

In the latest quarter, the Vision Fund and its successor lost the equivalent of more than $6 billion collectively on the value of nine holdings, including Coupang, as the frenzy over some of tech’s hot listings cooled off slightly. Those companies had helped generate tens of billions of dollars in large paper gains for the two funds.

Even after accounting for those declines in value, the two funds still logged the equivalent of about $2.6 billion in investment gains in the latest quarter.

Outlook: Impact of Beijing Crackdown

What may be the worst news for SoftBank’s investment portfolio is still unfolding and hasn’t yet been fully reflected in the company’s earnings: a crackdown by Beijing on some of China’s most high-profile tech firms. Those include e-commerce giant Alibaba Group Holding Ltd., SoftBank’s biggest asset holding, whose value has fallen since regulators accused it earlier this year of anticompetitive practices and levied a record fine.

Additionally, the stock of Chinese ride-sharing leader Didi Global Inc., a top Vision Fund holding, is trading one-third lower than its June initial public offering price after regulators punished it for what they described as data-security problems.

Meanwhile, Full Truck Alliance Co., a Chinese Uber-like app for trucks also known as Manbang, is trading around 30% lower than its June IPO price after Chinese regulators launched a cybersecurity probe against it similar to the one it is conducting against Didi. ByteDance Ltd., owner of the popular TikTok short-video app, earlier this year postponed indefinitely what was expected to be a blockbuster listing after regulators signaled it needed to deal with data-security issues too. SoftBank is an investor in both ByteDance and Full Truck Alliance.

A Citibank report estimated Chinese tech companies accounted for 44% of the value of SoftBank’s investments as of the end of March, mostly owing to the Alibaba stake. They also make up a significant portion of the investments that the Vision Funds were counting on to generate future profits.

A pause on China investing

SoftBank is reacting to the Beijing crackdown by pausing investing in China and will wait for regulatory action against the country’s tech firms to play out. Chief Executive Masayoshi Son said on Tuesday that, “until the situation is clearer we want to wait and see… in a year or two I believe new rules will create a new situation.”

As early as May, executives pointed to the further upside from Vision Fund investments such as Chinese ride-hailing firm Didi Global Inc and “Uber for trucks” startup Full Truck Alliance Co Ltd.

While these companies are listed in New York, Chinese regulatory action has subsequently hammered valuations, underscoring SoftBank’s China risk even as the group seeks to reduce dependence on Chinese e-commerce giant Alibaba Group Holding, its largest asset.

About a quarter of Softbank’s investment holdings are on Chinese companies. And while the crackdown has affected returns expectations, executives still believe in the opportunities China’s large and growing market presents. “Our broader thesis in China is unchanged: It’s still a large, growing, and compelling economic opportunity,” said Navneet Govil, the chief financial officer of Vision Fund.

The Vision Fund unit on Tuesday posted a first-quarter profit of 236 billion yen ($2.14 billion) as gains from listings were offset by falling shares in firms like South Korean e-retailer Coupang Inc.

How did Softbank stock move?

The China turmoil is clouding the outlook for the group, shares of which have slipped a third from two-decade highs in March amid the completion of a record 2.5 trillion-yen buyback. Shares closed 0.9%, at ¥6,831, up slightly for the day but down more than 35% from the year’s peak.

The share price weakness and sell-side analyst speculation have driven the expectation that a buyback may be imminent.

The current consensus among 16 polled investment analysts tracking Softbank is to buy stock in SoftBank Group Corp. Meanwhile, the 14 analysts offering 12-month price forecasts for SoftBank Group Corp have a median target of 51.85, with a high estimate of 57.53 and a low estimate of 45.09. The median estimate represents a +68.70% increase from the last price of 30.74, according to CNN Business.

Choose one or several trading platforms and achieve your goals with Investors Europe

Investors Europe (Mauritius) Limited is authorised and regulated by the FSC Mauritius, license C112011088. Registered address: 4th Floor, Les Jamalacs Building, Vieux Conseil Street, Port-Louis 11328, Republic of Mauritius. Registered Number: 113933.

Any information contained on this website is provided to you for informational purposes only and should not be regarded as an offer or solicitation of an offer to buy or sell any investments or related services that may be referenced here. Investing in certain instruments, including stocks, options, futures, foreign currencies, and bonds involve a high level of risk. Trading on margin comes with substantial risk as well. You must be aware of these risks before opening an account to trade. The income you may get from online investing may go down as well as up.