SoftBank’s profits beat forecasts by a wide margin as technology investments pay off

Unlock the Publisher’s Digest for free

Japanese SoftBank Group beat analysts’ expectations and posted a quarterly profit for the first time in more than a year, providing a much-needed boost for the volatile tech conglomerate and its founder Masayoshi Son.

SoftBank said Thursday that it made net profit of 950 billion yen ($6.4 billion) in the third quarter through the end of December, well above analysts’ consensus forecasts of 373 billion yen from Bloomberg and 196.5 billion yen from data provider LSEG. A year ago it recorded a loss of 783 billion yen.

SoftBank last reported a profit in the fiscal second quarter of 2022, after selling a stake in Chinese e-commerce group Alibaba.

The group’s tech-heavy Vision funds posted an overall investment gain of 600.7 billion yen in the third quarter, helped by gains from companies such as TikTok owner ByteDance, food delivery app DoorDash and from a “recovery of public assets”. In the same quarter last year, Vision funds had posted a loss of 730 billion yen.

Yet despite what Yoshimitsu Goto, SoftBank’s chief financial officer, saw as “a steady improvement” in the Vision funds’ performance, they are still posting a cumulative loss of just under 3 trillion yen, or nearly $20 billion.

“We are . . . we are very close to being out of the water now,” Goto said, referring to the performance of the Vision funds.

Strong results on Wednesday from British chip designer Arm, 90% owned by the Japanese group, had already pushed Softbank shares up 11% on Thursday, for a year-to-date gain of more than 20%.

In its second earnings report since going public in September, Arm said it saw increased revenue from royalties and licensing amid strong demand for artificial intelligence. This endorsed Son’s vision for SoftBank, which focused on artificial intelligence deals.

The SoftBank CEO has been exploring a number of opportunities, including a potential investment in OpenAI and advanced discussions to fund “the iPhone of artificial intelligence.”

Last June, Son told shareholders that the company was going on the “counteroffensive” after years of asset sales and losses in its Vision funds, including startups like WeWork, the once-high-flying startup in the ‘desk rental who filed for bankruptcy. last year.

On Thursday, Goto said Son is “exploring the AI ​​strategy. . . but whatever he likes to do always leads to Arm. . . chip or Arm technology”.

Goto added that the company went through “a dramatic shift from being an Alibaba-focused company to an AI-focused company” in which Arm accounted for 32% of assets, with Vision funds making up another 38% at starting from the end of December.

The surge in Arm’s stock market value, as well as a $7.6 billion windfall in new shares in T-Mobile in December – awarded as part of a merger deal with Sprint in 2020 – improved results and they have burnished the group’s image among investors.

“It was a solid quarter,” said Kirk Boodry of Astris Advisory. “Arm drove the stock price today, but the quarterly results are a reminder that other parts of the company can contribute, as both T-Mobile and Vision Fund helped SoftBank achieve its first profit in five quarters. We were encouraged by VF’s results, especially as both funds reported gains in the valuation of private portfolio companies.”

In the third quarter, however, the discount between SoftBank Group’s stock market valuation and the rising value of its listed assets stood at around 50%, Goto said.

He added that even with Thursday’s surge in Arm’s share price, the discount was still “40-odd percent” and “a very serious issue that we will have to look at.”

Boodry said in a note to clients that “markets have been reluctant to put the full value on short-term changes” in net asset value, while others said the discount reflected a decline in confidence that Son was choosing the right strategy in your investments.

“The market doesn’t like its shift to early-stage investing, as the probability of success is lower than late-stage investing,” said David Gibson, an analyst at MST Financial, adding that the discount also represents a judgment on how much the IPO market may soon recover.

“The market is not yet convinced that the capital markets are open and therefore Son cannot realize capital values,” Gibson said.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *